Senior Loan Talking Points – October 29, 2020

Jeffrey Bakalar

Jeffrey Bakalar

Group Head and Chief Investment Officer, Senior Loans

Dan Norman

Dan Norman

Group Head and Senior Managing Director, Senior Loans

  • The U.S. loan market was not able to shake off the broad market weakness related to growing concerns around surging COVID-19 cases globally and new lockdown measures in Europe. As a result, the S&P/LSTA Leveraged Loan Index (“the Index”) lost 48 bps for the week ended October 29, while the average Index bid moved lower by 49 bps, to 93.23.
  • In the primary market, new deal activity slowed down relative to last week, as arrangers aimed to wrap up transactions ahead of next week’s U.S. Presidential election. Overall, October represented the third busiest month of the year for the asset class, with roughly $38.7 billion launched, most of which was tied to LBO-related transactions (roughly 56% of total volume). The forward pipeline expanded significantly this week, with the new expected supply coming in at about $3.8 billion, compared to about $1.0 billion last week.
  • Although price action in the secondary market moved generally downward, there were plenty of positive moves stemming from earnings news.
  • Loan demand remained positive due to strong CLO creation, as six new deals were issued. YTD issuance is now just under $70 billion, not far off from the original full-year consensus forecast of $80-90 billion. Mutual fund/ETF outflows totaled $186 million for the five business days ended October 28.
  • There was one default in the Index this week (Frontera Generation Holdings).
Average Bid: S&P/LSTA LLI
Average Bid: S&P/LSTA LLI
Average 3-YR Call Secondary Spreads: S&P/LSTA LLI (1,2)
Average 3-YR Call Secondary Spreads: S&P/LSTA LLI 1,2
Lagging 12-Month Default Rate: S&P/LSTA LLI (3)
Lagging 12-Month Default Rate: S&P/LSTA LLI (3)
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.


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 October 23, 2020.

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.