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Figure 1

Primary Market for Leveraged Loans

Series: Annual data plotted as two lines. Units are percentage points.

Horizon: 1994 to 2014

Description: As shown in the figure, the primary market for leveraged loans comprised 80 percent banks and securities firms in 1994. The remaining 20 percent of the market in 1994 was nonbanks. From 1994 to 2014, the share of banks and securities firms steadily declined to less than 20 percent, while the share of nonbanks steadily grew to account for more than 80 percent of the primary market by the end of 2014.

Source: Standard & Poor's Leveraged Commentary and Data.*

 

 

Figure 2

Loan Market Investor Base

Series: Data plotted as stacked bars totaling 100 percent.

Horizon: 2002 to 2014

Description: The figure shows the percentages of investor types in the primary loan market. The investor types in the chart are banks; collateralized loan obligations (CLOs); loan mutual funds; hedge, distressed, and high-yield (HY) funds; and other. CLOs are the largest category, ranging from about 50 percent to about 70 percent of the market. Banks reduced their footprint in the loan market from about 30 percent in 2002 to about 10 percent in 2014. Loan mutual funds increased their footprint from about 10 percent in 2012 to about 25 percent in 2013. However, loan mutual funds reduced their footprint slightly, to about 20 percent in 2014.

Note: Key identifies bar segments from top to bottom for each period. CLO is collateralized loan obligation. HY is high-yield.

Source: Standard & Poor's Leveraged Commentary and Data.*

 

 

Figure 3

Average Debt/EBITDA Ratio for Large Corporate, LBO, and Middle-Market Loans

Series: Data are plotted as bars.

Horizon: 2004-2014

Description: Average ratio of debt to EBITDA (earnings before interest, taxes, depreciation, and amortization), also known as leverage. As shown in the figure, the average debt-to-EBITDA of leveraged loans peaked in 2007: five times debt-to-EBITDA for large corporate loans, six times debt-to-EBITDA for large leveraged buyout (LBO) loans, and five times debt-to-EBITDA for middle-market loans. The figure shows that these multiples have been increasing steadily over the past three years, and they peaked again to about the 2007 high in the third quarter of 2014.

Note: Key identifies bars from left to right within each period. \"Large corporate loans\" captures loans to issuers with EBITDA of more than $50 million. \"Middle-market loans\" captures issuers with EBITDA of $50 million or less. EBITDA is earnings before interest, taxation, depreciation and amortization, and LBO is leveraged buyout.

Source: Standard & Poor's Leveraged Commentary and Data.*

 

 

Figure 4

Average New-Issue B+/B Institutional Spreads

Series: Data are plotted in two lines

Horizon: 2001-2015, quarterly

Description: Spread between three-month LIBOR rate and issuance of new B+/B and BB/BB- leveraged loans. Units are basis points. The figure shows that spreads of B+/B and BB/BB- loans reached their lowest points in 2007 at about 225 and 150 basis points, respectively. The spreads peaked in 2010 and 2011 to about 550 basis points and 400 basis points, respectively. They then decreased to around 400 and 250 basis points in 2013. Most recently, they have been gradually increasing to 450 and 350 basis points, respectively.

Note: Breaks in the series represent periods with no issuance. Straight spreads do not include upfront fees.

Source: Standard & Poor's Leveraged Commentary and Data.*

 

 

Figure 5

Interest Rate Coverage vs. Debt/EBITDA

Series: Data are plotted as a scatterplot

Horizon: 1997 to 2014

Description: Interest coverage ratio and Debt to EBITDA (also known as leverage). The interest coverage ratio is shown on the y-axis and leverage is shown on the x-axis. As shown in the figure, interest rate coverage has been between about 2.5 and 4 historically. Average total leverage has been between about 3.5 and 5 historically. Most recently, interest rate coverage has peaked to one of its highest levels at around 4.0 and leverage has also been at an elevated range of about 5 times debt-to-EBITDA.

Source: Standard & Poor's Leveraged Commentary and Data.*

 

 

Figure 6

Average Bid Price

Series: Daily data are plotted as a line.

Horizon: 2002-2014

Description: Average bid price on secondary loans. Units are percentage points of par. As shown in the figure, the average bid price has remained near 100 percent of par historically, with the exception of 2008 when the average bid price fell to about 60 percent of par.

Source: Thomson Reuters LPC Secondary Market Intelligence.

 

 

Figure 7

Trailing 12-Month Default Rate

Series: Monthly data are plotted as a line.

Horizon: 2001 to 2015

Description: Trailing 12-month default rate of leveraged loans. Units are percentage points. The default rate of leveraged loans peaked in 2001-2002 at about 7 percent and in 2009 at around 11 percent. The default rate has been between 0 to 5 percent over the past four years.

Note: Default rate is calculated as the amount in default over the last 12 months divided by the amount outstanding at the beginning of the 12-month period.

Source: Moody's default data via Standard & Poor's Leveraged Commentary and Data.*

 

 

Figure 8

Leveraged Loan Issuance, by Investor Type

Series: Data are plotted as bars for leveraged loans issuance and as a line graph for leveraged loans outstanding. Data are at an annual rate. Units are billions of dollars.

Horizon: 2004 to 2014

Description: The figure shows leveraged loan issuance by investor type: banks (pro rata) and institutional investors, as stacked bars. In addition, the figure includes a line graph showing the total outstanding amount of leveraged loans. As shown in the figure, leveraged loan issuance decreased dramatically in 2008 and 2009 from its 2007 peak of about $600 billion. Most recently, in 2013 and in 2014:Q1 and 2014:Q2, leveraged loan issuance peaked again reaching a pace of more than $600 billion of annual issuance. Issuance for banks has made up less than one-third of issuance in most years, while the rest is allocated to institutional investors. Leveraged loans outstanding increased sharply from 2004 to 2007, from about $200 billion to about $600 billion. Since 2012, leveraged loans outstanding increased steadily from about $600 billion to just over $800 billion by the fourth quarter of 2014.

Note: Key identifies bar segments from top to bottom for each period.

Source: Standard & Poor's Leveraged Commentary and Data.*

 

 

Figure 9

Issuance of Covenant-Lite Loans

Series: The figure plots volume of covenant-lite loans (billions of dollars, annual rate) as bars, and covenant-lite loans as a percentage of total institutional leveraged loan issuance as a curve.

Horizon: 2003 to 2014

Description: Issuance of covenant-lite loans. Annual covenant-lite loan issuance volume remained under $100 billion until a sharp increase in 2013 to a little under $260 billion. Covenant-lite loan issuance volume in 2014 decreased slightly to about $240 billion. The fraction of covenant-lite loans of total institutional leveraged loan issuance increased steadily since 2010 in line with the increase in covenant-lite issuance. In 2014, covenant-lite loan issuance accounted for about 60 percent of total institutional leveraged loan issuance.

Note: Excludes debtor-in-possession, second liens, and unsecured transactions.

Source: Standard & Poor's Leveraged Commentary and Data.*

 

 

Figure 10

Number of Covenants

Series: Data plotted as stacked bars. Units are percent.

Horizon: 1997 to 2014

Number of covenants. The figure shows three stacked bars for each period identifying the percentage of loans having 2 or less, 3, and 4 or more covenants. Since 2004, the number of loans with 2 or less covenants has increased substantially from about 20 percent to well over 90 percent.

Note: Key identifies bar segments from top to bottom for each period. Includes loans which are not covenant-lite.

Source: Standard & Poor's Leveraged Commentary and Data.*

 

 

Figure 11

Loan Fund Assets under Management

Series: The figure shows the aggregate assets under management of loan funds. In addition, the figure includes a line graph identifying the fraction of loans held by loan funds compared with total outstanding loans.

Horizon: 2001 to 2014

Description: Assets under management by retail loan funds sharply increased in 2013 to about $175 billion from about $100 billion in 2012. After peaking in the first quarter of 2014 at slightly above $175 billion, loan fund assets under management decreased gradually to just about $150 billion in the fourth quarter of 2014. Loan funds assets under management as a fraction of total outstanding loans has remained between 0 and 25 percent from 2001 to 2014. Loan funds assets under management as a fraction of total outstanding loans peaked over the 2012 to 2013 period at about 25 percent.

Source: Standard & Poor's Leveraged Commentary and Data.*

 

 

Figure 12

Loan Mutual Fund Flows

Series: Data plotted as bars. Units are billions of dollars, shown at an annual rate. The figure shows the flow of funds to and from loan mutual funds.

Horizon: 2004 to 2014

Description: In 2013, inflows to loan mutual funds spiked to about $80 billion compared with less than $20 billion in the preceding year. In the first quarter of 2014, the rate of inflows decreased to about $40 billion on an annualized basis. The trend reversed for the rest of 2014, with outflows increasing in pace from about $20 billion in the second quarter to about $60 billion in the fourth quarter.

Source: Standard & Poor's Leveraged Commentary and Data.*

 

 

Figure 13

Leveraged Loan Forward Calendar

Series: Data shown are weekly. Data plotted as line graph. Units are billions of dollars.

Horizon: 2004 to 2014

Description: As shown in the figure, the leveraged loan forward calendar increased dramatically in 2007 from about $100 billion to about $250 billion. The number decreased to about $0 billion by the end of 2008. Since 2008, the leveraged loan forward calendar has stayed between $0 billion and about $60 billion.

Source: Standard & Poor's Leveraged Commentary and Data.*

 

* Disclaimer: S&P and its third-party information providers expressly disclaim the accuracy and completeness of the information provided to the Board, as well as any errors or omissions arising from the use of such information. Further, the information provided herein does not constitute, and should not be used as, advice regarding the suitability of securities for investment purposes or any other type of investment advice. Return to text.
Last update: February 23, 2015