- Loans enjoyed another week of positive returns, as the S&P/LSTA Leveraged Loan Index (the “Index”) advanced by 0.21% for the seven-day period ended May 27. The average bid of the Index has now crossed the 98 mark for the first time since November 2018.
- Primary market activity slowed notably relative to the prior week, as loan arrangers launched just $2.4 billion. The brief lull in supply volume is unsurprising given the upcoming holiday weekend. For the month, total issuance has amounted to nearly $35 billion. In the forward calendar, repayment activity continues to outstrip expected new supply (by about $8.4 billion).
- Secondary trading levels were firmer this week, and allocations that broke for trading generally ticked up.
- Investor demand for loans remained in high gear, particularly for the retail loan fund and ETF segment, which saw another significant weekly inflow, to the tune of $862 million for the five business days ended May 26 according to Lipper. On the CLO front, four more deals were issued by managers, pushing the YTD total to $61.6 billion.
- There were no defaults in the Index this week, as the trailing-12-month default rate by principal amount continues to be well below the historical average for the asset class.
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 21, 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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Past performance is no guarantee of future results.