April 22, 2021 - written by Ted Basta. LSTA secondary loan trading volume surged during the first quarter of 2021, rising 27% to $209B. First quarter’s tally was the second busiest on record, just 16% short of first quarter 2020, where volume totaled $250B (including March’s record $119B in activity).  In turn, a record average number of loans, 1,522 to be exact, traded monthly across the first quarter.  On an annualized basis, the market’s turnover ratio – which is defined as total trade volume divided by average S&P/LSTA Leveraged Loan Index outstandings – hit 70%.  In comparison, the ratio had fallen below 70% for both full year 2019 and 2020. 1Q21 par trading volume increased 28% to $199.3B, or 95% of total trading.  On the distressed side, volume increased 18% to a three-year high of $9.7B.  Distressed trading volume, though, remained highly concentrated in a small group of loans, with the most active loan representing a staggering 24% of total distressed 1Q21 activity.

Across the first quarter, secondary trading levels tacked on additional gains after rising to pre-COVID-19 levels late last year.  Since year-end, the average trade price increased 136 basis points to 98.84, while the median trade price tacked on an additional 75-basis point gain to 99.75. (To be fair, the median did soften in March after rising to 100 in February.)  At the same time, the average and median bid-ask spread levels on the traded universe of loans both tightened 25 basis points to 63 and 50 basis points, respectively.  While the rally in the secondary stalled in March, trading volume spiked to a 12-month high of $75.2B.  March activity represented a 13% rise over February and a noteworthy 26% increase over the preceding 11-month average of $59.6B.  This increase in trading volume and the softening of the median trade level was not too surprising given the near-record level of first quarter institutional lending activity, which was chock-full of refinancing activity, particularly in March.  According to S&P Global, institutional lending volume soared past $170B during the first quarter, with 45% of volume refinancing existing debt.  In March, the S&P/LSTA Leveraged Loan Index tacked on $21B in new loans outstanding as new supply finally approached visible demand.  (CLO issuance and Loan Mutual Fund flows combined to total almost $20B in visible demand during March). Furthermore, the heavy dose of refinancings took out a sizeable portion of the secondary that was trading in a par-plus context.   To that point, par-plus trade activity steadily declined across the first quarter as primary market activity intensified.  In January, par-plus trading volume represented 37% of total activity; by the end of the quarter, that figure fell to 24%.  That said, the secondary remains strong with just 3% of March volume transacting in a sub-90 context – roughly half the figure which was reported at year-end.

For more information on the LSTA’s 1Q21 Trade & Settlement Data Study, please join Ted Basta for his quarterly webcast on April 29th at 4PM (ET) by clicking here to register.

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