Senior Loan Talking Points - May 10, 2018

Jeffrey Bakalar

Jeffrey Bakalar

Group Head and Chief Investment Officer, Senior Loans

Dan Norman

Dan Norman

Group Head and Managing Director, Senior Loans

  • The S&P/LSTA Leveraged Loan Index (the “Index”) returned 0.03%, despite a seven bps slip in the average Index bid, to 98.47.
  • Activity in the primary market was busy this week as managers worked through $15 billion of new issue volume, the largest total in nine weeks. M&A related deals were the main driver, accounting for nearly 75% of total issuance. MTD volume now stands at $17.5 billion, which nearly matches the short $18 billion in all of April.
  • Earnings news reverberated through the secondary market. However, overall trading levels were largely unaffected as the average bid of LCD’s flow name composite was basically unchanged at 99.82% of par.
  • Looking ahead, net of the approximately $12.2 billion of expected repayments that are unassociated with the pipeline, net new supply expected in market totals about $34.1 billion, which is slightly down from last week’s $35.6 billion.
  • Retail loan funds gathered $416 million of inflows (Lipper FMI universe*), and three CLOs were issued, which brings MTD issuance for the latter to $1.5 billion, and YTD issuance to $44.5 billion.
  • There were no defaults in the Index this week.
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*S&P/LCD estimate.
Source: S&P/LCD, S&P/LSTA Leveraged Loan Index and S&P Global Market Intelligence. Additional footnotes and disclosures on back page.  Past performance is no guarantee of future results. Investors cannot invest directly in the Index.

Unless otherwise noted, the source for all data in this report is Standard & Poor’s/LCD. S&P/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 May 4, 2018.

2 – Excludes facilities that are currently in default.

3 – Comprises all loans, including those not tracked in the LPC mark-to-market service. Vast majority are institutional tranches. 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 twelvemonth 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.

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Past performance is no guarantee of future results.

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