Fixed Income Forum

Syndicated Loan Market in Distress

by Luis Miguel Tejada

The credit markets have been dealing with rising distress lately, with Syndicated Loan prices dropping materially over the past six months. In fact, pricing today is at its lowest levels since the beginning of the Covid pandemic as represented by Solve’s real-time composite bid prices on approximately 2,000 USD and 550 EUR institutional term loans.

Average composite prices for USD denominated loans have dropped 6% this year, while EUR loans have decreased even more at a 9% decline. In the U.S. market, the industries facing the strongest headwinds this year have been Telecommunications, Consumer Goods: Durable and Construction & Building; these sectors have seen average composite prices drop an average of 9%. Virtually all industries have declined except for Oil & Gas during 2022.

The percentage of institutional term loans that are being priced at a discount has seen a significant increase vs. the beginning of the year, with USD loans priced under $90 tripling this year to nearly 22% of the observed market and EUR loans under €90 increasing even faster to reach almost 44% of their respective market. Much of the decline in loan prices can be attributed to worsening global economic outlook, increasing fears of continued inflationary headwinds and associated GDP contraction as Central Banks increase rates, and rising concerns that the war in Ukraine may continue longer or escalate in severity.

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