21 Nov Voya Senior Loan – A Market Update, Fall 2014
Voya Senior Loan – White Paper – A Market Update
From our vantage point, the senior loan market looks reasonably well situated right now, contrary, in many instances, to what we’ve been reading recently in the financial press. Senior loans (a/k/a “leveraged loans”) were one of the best performing “high income” asset classes during the September through October risk-off period, and have a long track record of providing attractive risk-adjusted returns (i.e., “Sharpe” ratios) to investors. In this short piece, we discuss a few of the key factors behind both recent loan performance and the current investment thesis. And, just maybe, deconstruct some misconceptions along the way.
New Issue Activity – Unexpectedly Robust at Times
New issue activity, which is the lifeblood of our market, and a generally reliable litmus test of overall market conditions, has been very healthy for most of 2014. In some periods throughout the year-to-date period, the pace and aggregate size of new deal flow has outdistanced overall demand by a meaningful margin (more on that below). Total market outstandings for the S&P/LSTA Leveraged Loan Index pushed past the $800 billion mark recently, and while new issue volume to date (about $362 billion through Nov 13) is down about 13% from the same point last year, the complexion of this deal flow has been generally healthier in that the bulk of the activity has been merger and acquisition related, as opposed to the simple refinancing and re-pricing exercise that defined much of 2013. Although the forward calendar is expected to slow as we near year-end (which is the typical seasonal pattern), we do expect overall financing activity to remain reasonably robust heading into 2015, assuming no unexpected downside surprises to U.S. economic growth.