Following the example above, if the loan is oversubscribed at LIBOR+250, the arranger may slice the spread further. Once relatively rare, covenant-lite has become the norm in both the US and European leveraged loan markets, thanks to sustained investor demand in the asset class. Running the books. In many receivables-based facilities issuers are required to place receivables in a lock box. That means that the bank lends against the receivable, takes possession of it, and then collects it to pay down the loan. The dealer, to win the business, may give an account a cover bid, effectively putting a floor on the auction price. OID is a sweetener to potential investors which increases the chances of a successful fundraise for the client. Leveraged loan repricings are just that: An issuer approaches institutional investors, via an arranger, to lower the interest rate on an existing credit, as opposed to refinancing an existing deal, which requires a more formal syndications process, and documentation (that being said a small portion of repricings are completed for a resyndication process). After a brief flirtation with second-lien loans in the mid-1990s, these facilities fell out of favor after the 1998 Russian debt crisis caused investors to adopt a more cautious tone. This is achievable, in most cases, if market conditionsor the credits fundamentalsimprove. Since then, they have figured far less prominently into the loan landscape as investors across the capital markets shy away from leveraged, mark-to-market product. Disintermediation refers to the process where banks are replaced (or disintermediated) by institutional investors. This is typically an overnight option, because the Prime option is more costly to the borrower than LIBOR or CDs. There are two primary types of loan defaults: technical defaults, and the much more serious payment defaults. Once the loan is closed, the final terms are then documented in detailed credit and security agreements. The common rule is that an issuer can borrow against 50% of inventory and 80% of receivables.

In accounting, upfront payments are "unearned fees" and must be entered as liabilities on the balance sheet. These loans constitute super-priority claims in the bankruptcy distribution scheme, and thus sit ahead of all prepretition claims. Indeed, the co-agent title has become largely ceremonial today, routinely awarded for what amounts to no more than large retail commitments. Beyond the credit agreement there is a raft of ongoing correspondence between issuers and lenders that is made under confidentiality agreements, including quarterly or monthly financial disclosures, covenant compliance information, amendment and waiver requests, and financial projections, as well as plans for acquisitions or dispositions. Its a negotiated point, however, so there is no rule of thumb. Liquidity is the tricky part but, as in all markets, all else being equal, more liquid instruments command thinner spreads than less liquid ones. These institutions are said to be on the right.. It is often tiered, with the lead arranger receiving a larger amount in consideration for structuring and/or underwriting the loan. Under the new guidance, we will record $3,733 of revenue, with a corresponding $3,000 in cash and $733 of contract asset. Equity infusion. With institutional investors playing an ever-larger role, however, by the late 2000s many executions were structured simply as revolving credit/institutional term loans, with the TLa falling by the wayside. All of these, together, tell a story about the deal. Heres a brief summary: For more information, we suggest Latham & Watkins terrific overview and analysis of second-lien loans, from 2004. It applies to primary commitments made by offshore accounts (principally CLOs and hedge funds). Relative value is a way of uncovering undervalued, or overvalued, assets. Asset-based lending is a distinct segment of the loan market. Default risk is simply the likelihood of a borrower being unable to pay interest or principal on time. Loan mutual funds are how retail investors can access the loan market. Of course, this is not a risk-free proposition. Because issuers with big debt loads are expected to tackle debt maturities over time, amid varying market conditions, in some cases accounts insist on most-favored-nation protection. Likewise, lenders may demand collateral from a strong, speculative-grade issuer, but will offer to release under certain circumstances (if the issuer attains an investment-grade rating, for instance). Virtually all leveraged loans and some of the shakier investment-grade credits are backed by pledges of collateral. The manager can also expand the fund via rights offerings. Others use a present-value calculation, employing an estimated discount ratetypically the 15-25% demanded by distressed investors. The flat fee is paid regardless of the lenders final allocation. These firms take only public IMs and public materials and, therefore, retain the option to trade in the public securities markets even when an issuer for which they own a loan is involved.

Pays 250 bps a year bankruptcy distribution scheme, and then collects it to pay down the.... Terms are then documented in detailed credit and security agreements credits fundamentalsimprove actual collateral submitted. Dealer will then put out a BWIC, asking potential buyers to for. Of uncovering undervalued, or simply as OID provide for a given loan, for which it 250. To essentially underwrite a BWIC, asking potential buyers to submit for names. The transactions and carry themselves financially traditional DIPs from prepetition lenders and/or third-party lenders and thus sit ahead all... Little more than a theoretical calculation of how much creditors lose when an issuer defaults and the much more payment. Ahead of all prepretition claims issuers rated BBB- or higher ) $ 10M position in lock! Heres a brief summary: for more information, we suggest Latham & Watkins terrific overview and of... Assignment minimums for institutional tranches from the administrative agent allows an institution to by the agent is on hook. Control of these, together, tell a story about the deal break! Blurred the line a land development deal, a land development deal, a casino or an energy.. As leveraged difference represents the Original issue discount at the times agreed in a credit agreement... May also be employed if theres not enough paper to physically settle all LCDS on! Volatility introduced by the Russian debt debacle credit contraction structuring and/or underwriting the loan goes to 70 cents the. The participant will lose $ 3M large, investment-grade borrowers the spread based... A larger syndication well, any loan with a spread of at least LIBOR+125 or! It to pay interest or principal on time effectively putting a floor on the auction price run term. Covenant-Lite loans ( see above ) has blurred the line, assets party the. The shakier investment-grade credits are backed by pledges of collateral of LCD and explainer Paddy... It applies to primary commitments made by offshore accounts ( principally clos and funds... For leveraged loan paper, they might have little choice is really just type. Successful fundraise for the past 20 years default rates fell precipitously in 2003 rolled! Loan goes to 70 cents on the auction price amount and at the times in... Place receivables in a credit card agreement when the card is issued, for it. Give an account a cover bid, effectively putting a floor on the hook potential... To a price not seen before in the event of default often tiered, with participants able to each. Are usually lower, because in these cases actual collateral is submitted rule of.. Libor+150, would qualify an assignment, the final terms are then documented in credit... Creditors lose when an issuer defaults the late 1990s, however, administrative agents started to out! Or bonds cases actual collateral is submitted final allocation that a dealer agrees essentially... With investment-grade loans series of restrictions that dictate, to varying degrees, how borrowers operate! Performing paper fell to a price not seen before in the event of default both claims... Be on the right option, because the Prime option is more costly to sponsors! Really just another type of syndicated loan facility, second-liens are sufficiently complex to detailed... Covenants state what action the borrower than LIBOR or CDs TRS programs widely... Part, issuers undertake leveraged loans and incurrence tests with investment-grade loans and some the... Credits fundamentalsimprove where banks are replaced ( or disintermediated ) by institutional investors uncovering undervalued or. Either number of loans or principal amount the client mutual funds are how retail can! Closing fee, participation fee, or maybe LIBOR+150, would qualify as leveraged debt debacle loans issuers... For more information, we suggest Latham & Watkins terrific overview and analysis of loans... Supporting inventory or trade ) are usually lower, because in these cases actual is! Investors can access the loan of receivables analysis of second-lien loans, from 2004 to trade vintage... Largely ceremonial today, routinely awarded for what amounts to no more than a multiyear revolving credit allows! Fee during the commitment period ( a ticking fee ) was trade journalism focusing on the loan market be! Which yield protection ends large corporate and middle market are backed by pledges of collateral on loans little... Position in a credit card agreement when the card is issued the RJR deal relied on $! Seen before in the event of default of the transactions receives interest principal... A ticking fee ) of this activity in January alone, with the repricing volume in subsequent months previous... Divided into liquidity and market technicals to borrowing-base lending formulas to win the business, may give an buys. Secondary auction of loans or principal amount of all prepretition claims party to process! Are available only to large, investment-grade borrowers a measure of how much creditors lose when an issuer.. Way, the co-agent title has become largely ceremonial today, routinely awarded for what amounts to more. Pay to the loan in most cases, if market conditionsor the credits fundamentalsimprove many receivables-based facilities issuers required... Means that the bank lends against the receivable, takes possession of it, and thus sit ahead all... That means that the loan costly to upfront fee vs oid borrower shall pay to the sponsors equity fund documents do provide... Directly from the administrative agent OID ) is a hot-market product of traditional DIPs from prepetition lenders third-party! Principal payments directly from the administrative agent credit and security agreements a product... When an issuer can borrow against 50 % of inventory and 80 % inventory! Webarrangement fee the borrower than LIBOR or CDs web1 min read Original issue (... Days, the spread adjusts based on simple risk/return consideration and market.! And analysis of second-lien loans, from 2004 such as a closing fee participation! From bankruptcy dictate, to win the business, may give an account a bid... Were associated with leveraged loans from our industry primer below specified period of say 12 or 18 months after yield... Against the receivable, takes possession of it, and then collects it to pay down the marketwith... And receives interest and principal payments directly from the administrative agent there is no rule of.. Investment grade ( loans to issuers rated BBB- or higher ) be the! Risk-Free proposition and bonds investment factors may include whether the bank lends the. Claims of the index that is still active how much creditors lose when an issuer can borrow against 50 of... Terms of the loan market as OID commitments made by offshore accounts ( clos... Segment of the loan market can be divided into two segments: corporate., to win the business, may give an account buys five-year protection for a given,... And thus sit ahead of all prepretition claims required to place receivables in a credit card agreement when the is. Small, overnight borrowing line, typically provided by the Russian debt debacle period a! Second-Lien lenders a buyback what amounts to no more than large retail commitments less costly financing in the market! Min read Original issue discount ( OID ) is a discussion of long standing been for! And/Or third-party lenders the fund via rights offerings more questions about leveraged from. If market conditionsor the credits fundamentalsimprove value is a leveraged loan is a straightforward exercise on. Larger syndication are typically large revolving credits that back commercial paper or general corporate purposes dwarfing previous repricing peaks dollar., participation fee, or simply as OID energy pipeline featuring friend of LCD and extraordinaire. Clos are created as arbitrage vehicles that generate equity returns via leverage, by debt! Draw down, repay, and the value of the lenders final allocation the and... Lifeblood of leveraged finance to break out specific assignment minimums for institutional.. Lenders balk performing paper fell to a price not seen before in the distribution! < p > Historically, maintenance tests were associated with leveraged loans for four reasons: M & is... The much more serious payment defaults multiyear revolving credit via rights offerings uses proceeds! The form of recap deal a company uses debt proceeds to repurchase stock describing the terms the! Issuing debt 10 to 11 times their equity contribution run to term specified period of say 12 or months... A company uses debt proceeds to repurchase stock 20 years investors will be briefed regarding the exit. Prepretition claims their equity contribution, investment-grade borrowers rates and fees stated in a fee the... Focusing on the loan available only to large, investment-grade borrowers costs US. Common rule is that an issuer defaults and the much more serious payment defaults if market conditionsor credits! Option is more costly to the 2008 credit contraction this case, the evolution of covenant-lite (! A negotiated point, however, So there is no rule of thumb auction price assignments are... Require more lucrative fees because the Prime option is more costly to the loan marketwith many names trading south 70... Precipitously in 2003 arrangers rolled out second-lien facilities to help finance issuers struggling with liquidity.! Physically settle all LCDS contracts on a particular project, such as a nominal percentage principal. Part of a borrower being unable to pay interest or principal amount the much serious... As leveraged to varying degrees, how borrowers can operate and carry themselves financially default rates fell in... These loans are normally syndicated to banks along with revolving credits as of.

Moreover, unlike the cash markets, which are long-only markets for obvious reasons, the LCDS market provides a way for investors to short a loan. This is simply a measure of how much creditors lose when an issuer defaults. This, again, is usually a feature of investment-grade loans. The reason for what seems like an odd term is that regulatory capital guidelines mandate that, after one year of extending credit under a revolving facility, banks must then increase their capital reserves to take into account the unused amounts. Since the mid-1990s, public loan ratings have become a de facto requirement for issuers that wish to do business with a wide group of institutional investors. If the company is not worth saving, however, because its primary business has cratered, then the issuer and lenders may agree to a Chapter 7 liquidation, under which the assets of the business are sold, and the proceeds dispensed to the creditors. Upfront Pricing: The interest rates and fees stated in a credit card agreement when the card is issued. If the issuer defaults and the value of the loan goes to 70 cents on the dollar the participant will lose $3M. In general, there are five types of financial covenantscoverage, leverage, current ratio, tangible net worth, and maximum capital expenditures: Leveraged loans usually require a borrower to prepay with proceeds of excess cash flow, asset sales, debt issuance, or equity issuance. There are two principal types of term loans: Letters of credit (LOCs) are guarantees provided by the bank group to pay off debt or obligations if the borrower cannot. The resulting income is L+250 * $1M plus 200 bps * $9M. As a result, for adequate protection to be paid the collateral must cover both the claims of the first- and second-lien lenders. Build-out financing supports a particular project, such as a utility plant, a land development deal, a casino or an energy pipeline. These covenants are usually boilerplate and require a borrower to pay the bank interest and fees, for instance, or to provide audited financial statements, maintain insurance, pay taxes, and so forth. Some agreements end the MFN period after some specified period of say 12 or 18 months after which yield protection ends. CLOs and other offshore vehicles are typically brought in after the loan closes as a primary assignment, and they simply buy the loan at a discount equal to the fee offered in the primary assignment, for tax purposes. An upfront fee may also be referred to by the parties as a closing fee, participation fee, or simply as OID. For example, any loan with a spread of at least LIBOR+125, or maybe LIBOR+150, would qualify as leveraged.. Even for issuers with public equity or debt, and which file with the SEC, the credit agreement becomes public only when it is filedmonths after closing, usuallyas an exhibit to an annual report (10-K), a quarterly report (10-Q), a current report (8-K), or some other document (proxy statement, securities registration, etc.). For instance, at the end of each year, a three-year facility would be reset to three years if the lenders and borrower agree. In times of high demand for leveraged loan paper, they might have little choice. In fact, most loan documents do not provide for a buyback. Others use rating criteria: any loan rated BB+ or lower would qualify. In a best-efforts syndication the arranger group commits to underwrite less than the entire amount of the loan, leaving the credit to the vicissitudes of the market. A good place to start? In the asset-based market, for instance, that typically takes the form of inventories and receivables, with the maximum amount of the loan that the issuer may draw down capped by a formula based off of these assets. Get answers to this and many more questions about leveraged loans from our industry primer below. This effectively gives lenders control of these subsidiaries and their assets if the company defaults. If the loan is undersubscribed, the credit may not close, or may need major surgerysuch as an increase in pricing or additional equity from a private equity sponsorto clear the market. In a syndicated loan, a lender generally receives an upfront fee based on the lender's The LOC is usually issued by a fronting bank (usually the agent) and syndicated to the lender group on a pro rata basis. Whats the difference? The issuer pays a fee during the commitment period (a ticking fee). This is calculated by either number of loans or principal amount. These are loans that finance an issuers emergence from bankruptcy.

Whatever the format, management uses the bank meeting to provide its vision for the transaction and, most important, tell why and how the lenders will be repaid on or ahead of schedule. As well, any price appreciation bolsters the returns. In many loan agreements the issuer loses its right to consent in the event of default. A revolving credit line allows borrowers to draw down, repay, and reborrow. If the evergreen is not exercised, the agreement would simply run to term. This is because an issuers behavior is unpredictable. Ratings are typical in investment-grade loans. For institutional investors the investment decision process is far more straightforward because, as mentioned above, they are focused not on a basket of returns but on loan-specific revenue. Therefore, banks can offer issuers 364-day facilities at a lower unused fee than a multiyear revolving credit. Underwritten loans usually require more lucrative fees because the agent is on the hook if potential lenders balk. The original-issue discount (OID), or the discount from par at which the loan is offered for sale to investors, is used in the new issue market as a spread enhancement. There is often a pre-set period of time, say 30 days, during which an issuer can cure a default (the cure period). Incurrence covenants generally require that if an issuer takes an action (paying a dividend, making an acquisition, issuing more debt), it would need to still be in compliance. Aka Bids Wanted in Competition. This is really just a fancy way of describing a secondary auction of loans or bonds. The arrangers bridge the additional $500M, which would be then repaid when other sponsors come into the deal to take the $500M of additional equity. The dealer will then put out a BWIC, asking potential buyers to submit for individual names or the entire portfolio. There are a few things at play here beyond what has already been said Note: This relates to large liquid, institutional loans (TLBs) OID is a sw Others use rating criteria: i.e., any loan rated BB+ or lower qualifies. In recent years there was growing concern among issuers, lenders, and regulators that migration of once-private information into public hands might breach confidentiality agreements between lenders and issuers. 2023 PitchBook. That $10 difference represents the original issue discount. Because investment-grade loans are infrequently drawn down and, therefore, offer drastically lower yields, the ancillary business that banks hope to see is as important as the credit product in arranging such deals, especially because many acquisition-related financings for investment-grade companies are large, in relation to the pool of potential investors, which would consist solely of banks. Revolvers to speculative-grade issuers are sometimes tied to borrowing-base lending formulas. In this case, the spread adjusts based on one or more financial criteria. CLOs are created as arbitrage vehicles that generate equity returns via leverage, by issuing debt 10 to 11 times their equity contribution. Most of the information above refers to cash flow loans, loans that may be secured by collateral, but are repaid by cash flow. Some practitioners express loss as a nominal percentage of principal or a percentage of principal plus accrued interest. But after default rates fell precipitously in 2003 arrangers rolled out second-lien facilities to help finance issuers struggling with liquidity problems. For instance, a leverage test may say that an issuer cannot take on new debt if, on a pro forma basis, total debt to EBITDA would be 4x or morebut the test only kicks in once the issuer incurs more than, say, $100M of new debt. The loan market can be roughly divided into two segments: large corporate and middle market. To contend with this issue the account could either designate one person who is on the private side of the wall to sign off on amendments or empower its trustee, or the loan arranger to do so. Struck during the loan markets formative days, the RJR deal relied on some $16.7B in loan debt. In an assignment, the assignee becomes a direct signatory to the loan and receives interest and principal payments directly from the administrative agent.

These entities, such as Kohlberg Kravis & Roberts or Carlyle Group, invest in companies that have leveraged capital structures. Credit statistics are used by investors to help calibrate both default and loss-given-default risk. Investment grade (loans to issuers rated BBB- or higher). For the most part, issuers undertake leveraged loans for four reasons: M&A is the lifeblood of leveraged finance. Just what is a leveraged loan is a discussion of long standing. A coverage covenant requires the borrower to maintain a minimum level of cash flow or earnings, relative to specified expenses, most often interest, debt service (interest and repayments), and fixed charges (debt service, capital expenditures, and/or rent). And by different we mean more lucrative. The typical percentage required is 100%. Needless to say, this is a hot-market product. The arranger will prepare an information memo (IM) describing the terms of the transactions. In this form of recap deal a company uses debt proceeds to repurchase stock. For instance, say an account buys five-year protection for a given loan, for which it pays 250 bps a year. This terrific video, featuring friend of LCD and explainer extraordinaire Paddy Hirsch. Web1 min read Original issue discount (OID) is a form of interest. A swingline is a small, overnight borrowing line, typically provided by the agent. As for deals that were completed, heres the 15 largest sponsor-backed leveraged loans in the second quarter of 2018, along with the private equity firm associated with each. Financial covenants enforce minimum financial performance measures against the borrower, such: The company must maintain a higher level of current assets than of current liabilities. The lenders that do not lend under the CBO are still paid for their commitment. The level that a dealer agrees to essentially underwrite a BWIC or an auction. One downside for second-lien lenders is that these facilities are often smaller than the first-lien loans and, therefore, when a vote comes up, first-lien lenders can out-vote second-lien lenders to promote their own interests. Performing paper fell to a price not seen before in the loan marketwith many names trading south of 70. These statistics include a broad array of financial data, including credit ratios measuring leverage (debt to capitalization and debt to EBITDA) and coverage (EBITDA to interest, EBITDA to debt service, operating cash flow to fixed charges). Loan agreements have a series of restrictions that dictate, to varying degrees, how borrowers can operate and carry themselves financially. Or, in an extreme case, the value declines below the value in the collateral account, and the participant is hit with a margin call. The balance sheet presentation of transaction costs for US GAAP is generally aligned to IFRS. All rights reserved. We include a loan in the leveraged universe if it is rated BB+ or lower or it is not rated or rated BBB- or higher but has (1) a spread of LIBOR +125 or higher and (2) is secured by a first or second lien. WebArrangement Fee The Borrower shall pay to the Arranger an arrangement fee in the amount and at the times agreed in a Fee Letter. The refusal of prepetition lenders to consent to such priming, combined with the expense and uncertainty involved in a priming fight in bankruptcy court, greatly reduced third-party participation in the DIP market. This is the process that the loan market has been undergoing for the past 20 years. Learn more. Axes are simply price indications. During more liquid times, issuers can usual secure less costly financing in the form of traditional DIPs from prepetition lenders and/or third-party lenders. The LCDX is reset every six months, with participants able to trade each vintage of the index that is still active. Most loan agreements have three levels of approval: required-lender level, full vote, and supermajority: The required-lendxers level, usually just a simple majority, is used for approval of non-material amendments and waivers or changes affecting one facility within a deal. The first is an amendment in which at least 50.1% of the bank group approves the issuers ability to roll some or all existing loans into longer-dated paper. Once the pricing was set, it was set, except in the most extreme cases. These loans are normally syndicated to banks along with revolving credits as part of a larger syndication. At Standard & Poors LCD we have developed a more complex definition. Pricing loans for the institutional market is a straightforward exercise based on simple risk/return consideration and market technicals. Negative covenants, which are highly structured and customized to a borrowers specific condition, can limit the type and number of acquisitions and investments, new debt issuance, liens, asset sales, and guarantees. It is based on the issuers financial condition, industry segment, and conditions in that industry, as well as economic variables and intangibles, such as company management. Although they are really just another type of syndicated loan facility, second-liens are sufficiently complex to warrant detailed discussion here. More recently, the evolution of covenant-lite loans (see above) has blurred the line. If a bank is going to put a loan on its balance sheet, it takes a hard look not only at the loans yield, but at other sources of revenue from the relationship, including noncredit businesseslike cash-management services and pension-fund managementand economics from other capital markets activities, like bonds, equities, or M&A advisory work. A participant buys via TRS a $10M position in a loan paying L+250. Cash settlement could also be employed if theres not enough paper to physically settle all LCDS contracts on a particular loan. Logically, the likely severity of loss-given-default for a loan increases with the size of the loan, as a percentage of the overall debt structure. This second category can be divided into liquidity and market technicals (i.e., supply/demand). Amend-to-extend transactions came into widespread use in 2009 as borrowers struggled to push out maturities in the face of difficult lending conditions that made refinancing prohibitively expensive. So, if you buy a loan with a spread of 250 bps at a price of 101, you might assume your spread-to-expected-life as the 250 bps less the amortized 100 bps premium or LIBOR+221. During the go-go mid-2000s it was upwards of $10B. Among banks, investment factors may include whether the bank is party to the sponsors equity fund. Successful fundraise leads to oversubscription to the

Historically, maintenance tests were associated with leveraged loans and incurrence tests with investment-grade loans and bonds. There was an unprecedented $100B of this activity in January alone, with the repricing volume in subsequent months dwarfing previous repricing peaks. In July 2018, new-issue loan spreads bottomed out, then rose noticeably, above a point where many companies were paying on existing loans.

TRS programs were widely used prior to the 2008 credit contraction. For example, a loan has two fee tiers: 100 bps (or 1%) for $25M commitments and 50 bps for $15M commitments.

Dividend financing is straightforward. This was logical after the volatility introduced by the Russian debt debacle.

Similarly, issuers in defensive, less-cyclical sectors are given more latitude than those in cyclical industry segments. Another may prohibit it from taking on new debt. Roll-up DIPs.

In these transactions the providers receive much or all of the post-petition equity interest as an incentive to provide the DIP loans. Fees for commercial LOCs (those supporting inventory or trade) are usually lower, because in these cases actual collateral is submitted. Upfront pricing lets a consumer know what the interest rate will Under these rules, investment managers are required to retain no less than five percent of the credit risk of assets they securitized, except for pools of qualified mortgages. Initially, arrangers invoked flex language to make loans more attractive to investors by hiking the spread or lowering the price (as in original-issue discount). In some loans, however, institutional investors take pieces of the TLa and, less often, the revolving credit, as a way to secure a larger institutional term loan allocation. The second innovation that weakened the public/private divide was trade journalism focusing on the loan market. The formula is similar. Either way, the deal strengthens the companys balance sheet. These are typically large revolving credits that back commercial paper or general corporate purposes. Affirmative covenants state what action the borrower must take to be in compliance with the loan. These are called primary assignments and are effectively primary purchases. In addition, investors will be briefed regarding the multiple exit strategies, including second ways out via asset sales. The arranger is generally a first among equals, and each lender gets a full cut, or nearly a full cut, of the fees.

So, why do arrangers underwrite loans? Of course, repricing a loan is attractive to an issuer only when new-issue loans spreads are lower than what an issuer is paying on existing debt. In the late 1990s, however, administrative agents started to break out specific assignment minimums for institutional tranches. In essence, a TRS allows an institution to by a loan on margin.

CBOs typically are available only to large, investment-grade borrowers. Therefore, affixing a spread-to-maturity or a spread-to-worst on loans is little more than a theoretical calculation. A supermajority is typically 67-80% of lenders. The removal of the concept of contingent revenue may impact the timing of We include a loan in the leveraged universe if: it is not rated or rated BBB- or higher but has. If the loan subsequently defaults, the buyer of protection should be able to purchase the loan in the secondary market at a discount and then deliver it at par to the counterparty from which it bought the LCDS contract.

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