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Senior Loan Talking Points – April 3, 2025

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Mohamed Basma

Mohamed Basma, CFA

Managing Director, Head of Leveraged Credit

Bank building

Weekly Notables

Volatility picked up sharply this week, as Trump’s hawkish reciprocal tariff announcements caught markets by surprise. Given the increased risk of higher inflation and slower growth, risk sentiment soured with equities posting their worst day since 2020 and credit spreads moving notably wider. The loan market posted a return of -0.93%, marking the worst weekly performance of the year. The average Index bid price lost 100 bp, closing out the week at 95.52. Despite the weakness in bid prices, trading remained relatively orderly and two-way driven. As headline noise remains elevated with limited visibility on the full potential impacts on the economy due to the various moving pieces, we expect the loan market to be correlated with broader financial markets in the near term until more clarity forms. 

Market volatility has suppressed new issue activity in the primary market ahead of the tariff announcement, with the outcome of the meeting further exacerbating the already muted supply volumes. In the forward calendar, net of the anticipated $16 billion of repayments not associated with the forward pipeline, the amount of new supply projected to enter the market was $2.2 billion, down from $14.6 billion in the prior weekly estimate. 

Trading levels in the secondary market declined across all rating cohorts this week. Investors’ confidence has weakened, leading to a decrease in their risk appetite. In terms of performance, DoubleBs, Single-Bs and CCCs returned -0.67%, -1.02%, -1.62%, respectively. 

CLO issuance moderated this week, with only three deals priced during the week. YTD total volume is about $49.1 billion. On the retail side, investors have continued to withdraw assets from funds for the fifth week in a row. For the week, outflows totaled around $230 million, with all of the outflows coming from ETFs, while mutual funds added $68 million. 

There were no defaults in the Index this week.

Average Bid
April 1, 2021 to April 3, 2025
Average Bid
Average 3-YR Call Secondary Spreads 1,2
March 1, 2021 to March 31, 2025
Average 3-YR Call Secondary Spreads 1,2
Lagging 12 Month Default Rate 3
April 1, 2021 to April 3, 2025
Lagging 12 Month Default Rate 3
Index Stats
Index Stats

Source: Pitchbook Data, Inc./LCD, Morningstar ® LSTA ® Leveraged Loan Index. Additional footnotes and disclosures on back page. Past performance is no guarantee of future results. Investors cannot invest directly in the Index. *The Index’s average nominal spread calculation includes the benefit of base rate floors (where applicable).

Monthly Recap: March 2025

Similar to other spread products, the backdrop weakened in March due to growth and tariff concerns. The loan market returned -0.31% in March, marking the first month of negative performance since October 2023. Despite the losses, loans outperformed both equities and other credit products such as high yield and investment grade. However, loans returned 0.48% in Q1, which was one of the worst first quarters in the last 25 years. 

Turning to the secondary market, trading levels declined this month, as the average bid price lost 84 bp, closing out the month at 96.31. The share of loans priced at par or higher decreased to 10.3%, versus 36% last month. By credit quality, BBs outperformed by a decent amount, as risk appetite softened. BBs, Bs and CCCs returned 0.09%, -0.41%, and -1.84%, respectively. 

New institutional issuance was low this month, with M&A and refinancing transactions being the primary drivers of issuance. Repricings have understandably slowed given the recent decline in secondary trading levels. Total repricing volume fell to $8.7 billion from $40 billion in February. For the quarter, repricings were about $199.2 billion, surpassing the $159 billion recorded during the comparable period in 2024. Away from repricing, total supply fell to $35.9 billion this month from $44.2 billion in February and $64.4 in January. In Q1, total institutional volume was slightly higher than Q1 2024. 

Looking at the demand side, CLO formation remained strong, but on the retail side, there were significant outflows due to ongoing macro uncertainty and market volatility. CLO issuance was about $18.8 billion, down from $19.9 billion in February. For the quarter, 97 deals were priced during that period, totaling $48.6 billion, in line with Q1 2024 volume of $48.8 billion. On the retail side, $6.2 billion exited the loan funds, compared to an inflow of $2.1 billion last month. The total YTD net inflow stands at $1.7 billion. Of this total, approximately 26% of the flows came from ETFs, while mutual funds accounted for the remaining 73%. 

There were two defaults in the Index during the month. The trailing 12-month default rate by principal amount increased by 1bp to 0.82%. Default activity continues to skew towards distressed exchanges and LMEs, as the loan default rate inclusive of LMEs closed out March at 4.31%, up from 4.18% in February.

Index Stats
Index Stats
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Market Outlook
4380765

Unless otherwise noted, the source for all data in this report is Pitchbook Data, Inc/LCD. Pitchbook Data/LCD does not make any representations or warranties as to the completeness, accuracy or sufficiency of the data in this report. 

1. Assumes 3 Year Maturity. Three-year maturity assumption: (i) all loans pay off at par in 3 years, (ii) discount from par is amortized evenly over the 3 years as additional spread, and (iii) no other principal payments during the 3 years. Discounted spread is calculated based upon the current bid price, not on par. Please note that Index yield data is only available on a lagging basis, thus the data demonstrated is as of September 13, 2024. 

2. Excludes facilities that are currently in default. 

3. Issuer default rate is calculated as the number of defaults over the last twelve months divided by the number of issuers in the Index at the beginning of the twelve-month period. Principal default rate is calculated as the amount defaulted over the last twelve months divided by the amount outstanding at the beginning of the twelve-month period. 

General Risks for Floating Rate Senior Loans: Floating rate senior loans involve certain risks. Below investment grade assets carry a higher than normal risk that borrowers may default in the timely payment of principal and interest on their loans, which would likely cause the value of the investment to decrease. Changes in short-term market interest rates will directly affect the yield on investments in floating rate senior loans. If such rates fall, the investment’s yield will also fall. If interest rate spreads on loans decline in general, the yield on such loans will fall and the value of such loans may decrease. When short-term market interest rates rise, because of the lag between changes in such short-term rates and the resetting of the floating rates on senior loans, the impact of rising rates will be delayed to the extent of such lag. Because of the limited secondary market for floating rate senior loans, the ability to sell these loans in a timely fashion and/or at a favorable price may be limited. An increase or decrease in the demand for loans may adversely affect the loans. 

This commentary has been prepared by Voya Investment Management for informational purposes. Nothing contained herein should be construed as (i) an offer to sell or solicitation of an offer to buy any security or (ii) a recommendation as to the advisability of investing in, purchasing or selling any security. Any opinions expressed herein reflect our judgment and are subject to change. Certain of the statements contained herein are statements of future expectations and other forward-looking statements that are based on management’s current views and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in such statements. Actual results, performance or events may differ materially from those in such statements due to, without limitation, (1) general economic conditions, (2) performance of financial markets, (3) changes in laws and regulations and (4) changes in the policies of governments and/or regulatory authorities. The opinions, views and information expressed in this commentary regarding holdings are subject to change without notice. The information provided regarding holdings is not a recommendation to buy or sell any security. Fund holdings are fluid and are subject to daily change based on market conditions and other factors. 

Past performance is no guarantee of future results.

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