Senior Loan Talking Points – August 19, 2021

Jeffrey Bakalar

Jeffrey Bakalar

Group Head and Chief Investment Officer, Leveraged Credit Group

Mohamed Basma

Mohamed Basma, CFA

Managing Director, Head of Senior Loans and Global CLOs

Tamara Wieging

Tamara Wieging

Vice President, Client Portfolio Manager

Weekly Notables

  • Despite some volatility in equity markets this week, performance in the senior loan market remained steady, as the S&P/LSTA Leveraged Loan Index (the “Index”) returned 0.07% for the seven-day period ended August 19. The average Index bid price moved back above the 98 mark (to 98.06), having gained seven bps over the course of the week.
  • Not surprisingly, as we enter the traditional late-August summer slowdown, primary market activity waned relative to the pace set during the first two weeks of the month, with just a handful of deals launched during the period. Similarly, the forward pipeline contracted, as repayments now outstripping new supply by about $4.4 billion, as compared to net new supply of $3.1 billion in the last estimate.
  • Trading in the secondary market was relatively quiet due to the seasonal market lull, while trading levels moved slightly higher. CCCs, on average, saw the most pronounced upward movement.
  • Investor demand for loans remained healthy this week, a function of continued CLO issuance and retail fund inflows. Starting with CLOs, managers printed two new deals this week, bringing YTD issuance to just a hair under $100 billion. Meanwhile, U.S. retail loan funds recorded an aggregate inflow of $352 million for the five business days ended Aug 18 according to Lipper.
  • There were no defaults in the Index this week.
Average Bid: S&P/LSTA LLI
Average 3-YR Call Secondary Spreads: S&P/LSTA LLI 1,2
Lagging 12-Month Default Rate: S&P/LSTA LLI3
Index Stats
Index Stats

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.

1777423

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 August 13, 2021.

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 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.
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