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.

The new year brought a change to Washington with the inauguration of a new president intent on disrupting business as usual and investors attuned to the accompanying risk and opportunity. But in the loan market, however, it was more of the same: a technical imbalance with new loan supply falling short of high demand from investors, another wave of opportunistic repricings, and a highly bid secondary market with returns propelled by high interest rates.

2024 LSTA annual secondary loan trading volume soared 15% to a near-record $821.4 billion, the largest year-over-year increase in a decade.  2023, though, was an off-year as volumes fell 13% to a six-year low of $715 billion.  But back to 2024’s $821 billion in activity, which came in just $3 billion short of 2022’s record $824 billion, according to the LSTA’s 4Q24 Trade 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 fourth 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.