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 robust demand for broadly syndicated loans (BSL) moderated in June, sending the average price on the Morningstar LSTA Leveraged Loan Index (LLI) 34 basis points lower and drawing the asset class to a return of 0.35%, the lowest since October of last year, and below the average monthly return of 0.72% so far this year.

2Q24 secondary loan trading volume increased quarter-over-quarter by more than 1% to $208 billion, according to the LSTA’s Trade Data Study. But most impressive, 2Q volumes spiked 18% over the same time last year, which drove a 7% year-over-year increase in activity across the first half of 2024. Equally impressive, the number of individual loans trading on a per-month basis increased 5% in 2024, to an average of 1,550 loans.

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.