A primer brought to you by S & P Global that dissects all aspects of syndicated loans.

Syndicated Loans: The Market and the Mechanics, a primer created for the Loan Market participant.

The U.S. senior secured institutional term loan asset class provides a number of benefits to investors, including a floating-rate coupon, a large and liquid market, lower credit and interest-rate risk than high-yield bonds, and many ways to gain exposure.

Investors in loans like their short duration, high position in the capital structure and their floating-rate attribute that has resulted in better returns than other fixed income instruments. LSTA Executive Director Bram Smith met with four leading loan market participants to discuss the current state of the market, the issues it faces, and how senior loans can enhance institutional portfolios.

Geopolitical tensions, a looming trade war, and frothy market levels combined to put investors on edge in February. The S&P 500 dropped 1.3% while U.S. high-yield bond returns fell to 0.67%, from 1.37% the previous month, according to the Bloomberg U.S. Corporate High Yield Index. In the broadly syndicated loan (BSL) market, total return shrank to 0.11%, the lowest level since October 2023, as reported by the Morningstar LSTA Leveraged Loan Index (LLI). Performance in the BSL market reflected a softer secondary market with the market value component of return registering a loss of 0.50%.

As volatility spiked and a wave of new loans broke for trading in March, secondary loan trading volume totaled a staggering $102 billion. Secondary activity was up 24% month-over-month and 45% over the $70 billion LTM average, according to the LSTA’s 1Q25 Secondary Trading & Settlement Data Study.

Over the past three decades, the senior loan market has grown  from relatively modest beginnings into an essential element of corporate finance, playing a core-plus role in institutional fixed-income allocations.  In 2018, the S&P/LSTA Leveraged Loan Index, an indicator of market size, surpassed $1 trillion in outstandings.

The LSTA presents the results of the first quarter Secondary Trading & Settlement Study.  Presented by Ted Basta, EVP of Market Analytics and Investor Strategy, and Hugo Pereira, VP of Analytics and Strategy of the LSTA.