April 2, 2020 - For just the second time in its history, the S&P/LSTA Leveraged Loan Index (LLI) reported a double digit loss in March as other risk assets, including equities and high yield bonds, experienced their own historic losses.  At -12.37%, March’s loan return trailed only the 13.2% loss it reported during the height of the financial crisis in October 2008.  In comparison, the only two other instances where the LLI incurred a monthly loss of worse than 5% were sandwiched around October 2008 at 8.5% and 6.1% respectively.   The COVID-19 induced March selloff, which included an estimated $14 billion of mutual fund outflows, actually peaked in the loan market on the 23rd.  Over the course of those first three weeks of March, prices in the secondary loan market fell by almost 20 points.  At that point, the market’s average bid level had fallen to 76.23, its first sub-80 reading since July 2009.  Over the same period, bid-ask spreads widened 288 basis points to a record 422 basis points.  Previously, the widest bid-ask spread reported was 365 basis points in early 2009, when the market was trading in a mid-60s context.  But over the final six trading sessions of March, loan prices finally found a floor thanks in part to the massive $2 trillion bill to combat the economic destruction of the coronavirus outbreak.  From that point forward, prices rallied from oversold territory to an average bid of 82.85, a six-day gain of 662 basis points.  Bid-ask spreads though, remained abnormally high, at 400 basis points, given the market’s low 80’s handle.

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