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Why Senior loans today?
A unique combination of appealing characteristics
| 1. High Income | – Potential for consistent monthly income and strong risk-adjusted returns – Strong relative value: – US Loan Yield to 3yr: 4.80% |
| 2. Floating Rate Feature | – Effective duration of 0 years, no interest rate risk – “Pure” credit exposure, no duration risk |
| 3. Compelling Relative Value | – Loans offer one of the best yields in fixed income despite their senior secured status. |
| 4. Diversification Potential | – Low correlation with traditional asset clause. – Historically, has reduced volatility and increased returns when combined with IG fixed income. |
| 5. Senior Secured Status | – Highest priority to be repaid; lenders have first right to collateral in the event of a default – Higher recovery in case of default |
Senior Secured
Highest priority to be repaid; lenders have first right to collateral in the event of a default
Average ultimate recovery rates: 1987-2019
| Senior Secured Loans | 80.0% |
| Senior Unsecured Bonds | 47.0% |
| Subordinated Bonds | 26.0% |
Senior secured loan’s market performance
Senior loan flows have reversed
