15 Jan Voya Senior Loan Group – 2015 Market Recap and 2016 Outlook
Voya Senior Loan ‘Talking Points’ is a weekly publication from the Voya Senior Loan Team Heads, which provides key insights and results in the Senior Loan marketplace.
2015 Market Recap and 2016 Outlook
Despite solid performance in the first half of the year, the loan market’s total return fell short of initial expectations, as volatility across broad capital markets weighed on loan prices beginning in late summer and continuing through the end of the year. Although credit fundamentals (ex-energy and commodities) remained relatively solid, overall investor sentiment was soured in the latter part of the year by a number of external headwinds, particularly in the high yield bond market, resulting in shifting market technicals and a heightened focus on liquidity.
As a result of the price depreciation, as of December 31, the discount yield to 3-year call for loans stood at L+714 (vs. L+561 at the end of 2014), a yield more reminiscent of an unsecured high yield bond. Taken in that context alone, loans have rarely been so seemingly undervalued in a relatively benign current and forward implied default rate environment.