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.

Volatility returned in August, with markets plummeting early in the month on concerns about the health of the U.S. economy, combined with a more hawkish-than-expected statement from Japan’s central banks that prompted the unwinding of the U.S. dollar/yen carry trade. In the loan market, the average price on broadly syndicated loans (BSL) dropped 56 basis points on August 5 to a year-low 95.84. It was the sharpest drop in the BSL market since March 2023, when investors reacted to the failure of Silicon Valley Bank.

There was quite a scare in early August across asset classes, particularly on August 5th when a weak jobs report sparked renewed fears of a recession.  Adding to the volatility was a massive carry trade unwind that was triggered by the BOJ’s rate increase.

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 second 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.