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.

On Monday, February 24, U.S. stock indices recorded their worst decline in two years on concerns the coronavirus outbreak would continue to spread and begin to undermine global economic growth.  In the loan market, bid levels indiscriminately dropped 18 basis points to begin the week, which worsened February’s price decline to 32 basis points.

Coming off a strong finish to 2019 where the S&P/LSTA Leveraged Loan Index (LLI) produced an eight-month best 1.1% return, the loan market began 2020 right where it left off – on fire.  Through the first three weeks of the new year, prices in the secondary rallied more than 60 basis points as the lower-end of the market continued to catch a strong bid.

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 2019 LSTA Secondary Trading & Settlement Study.  Presented by Ted Basta, LSTA EVP –Analysis & Investor Strategy.