- U.S. loan returns were modestly higher this week, amid a continuously churning macro backdrop. The S&P/LSTA Leveraged Loan Index (the “Index”) returned 0.04% for the seven day period ended Jan. 24. Gains were solely a function of interest carry as the average Index bid was effectively unchanged at 95.88.
- The primary market was quiet, as arrangers worked on a couple of active M&A-related transactions, while still gauging the ease of which prospective deals will be absorbed. With that said, the forward calendar appears to be getting busier: net new supply (net of expected repayments) totaled $15.3 billion for the period, an increase from the prior estimate of $9.3 billion.
- Secondary trading levels remained fairly calm. Additionally, earnings season kicked off with a few issuers reporting results during the week.
- Demand, represented by retail investors and new CLO formation, also remained light. Loan fund outflows continued, with $418 million leaving the space during the five business days ended Jan 23 (Lipper FMI universe*). On the CLO front, the first deal of 2019 broke through, sized at just over $400 million.
- There were no defaults in the Index during the week.
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 January 18, 2019.
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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Past performance is no guarantee of future results.