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.

Loan prices in the secondary continued to strengthen in January after staging an impressive rally across November and December where bid levels surged by more than 300 bps (to an average just above 96). Most notably, after tacking on an additional 117 basis points since year-end, the market’s average bid level finally retraced its previous high of 97.35 established last January.

LSTA secondary loan trading volume increased 4% to a record $772B in 2020.  The COVID-19 induced price volatility of March went on to set the groundwork for a record year in trade activity and the storied V-shaped recovery in secondary prices that followed.

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.

This presentation is for the Fourth Quarter 2020 LSTA Secondary Trading & Settlement Study.  Presented by Ted Basta, LSTA EVP –Analysis & Investor Strategy.