July 16, 2024 - On July 15th, the LSTA 2024 Summer Series kicked off with a strong start, with nearly 600 members attending. Ioana Barza, Global Head of Research at KBRA DLD presented the first session of the series on the Evolution of the U.S. Loan Market. After a quick poll, we learned that about half the listeners had been working in the loan market for less than two years, and about half were only somewhat familiar with trends while 38% were not familiar at all. Armed with this information, Barza deftly navigated the basics of the market while providing more information for those who were somewhat more seasoned professionals. She covered the BSL market, direct lending / private credit, and even discussed more tricky topics such as the hybrid structure of the unitranche loan.
The basics of the market were explained, including underwritten loans and best efforts syndications, reasons for borrowings, as well as the differences between term loans and revolvers. Newcomers were taught about the attractive features of the loan asset class, ie, a senior secured floating rate class. Since the mid-90s, the loan asset class has evolved from an exotic, unknown class to a mainstream fixed income allocation. Given the market’s tremendous growth, even at a slower pace, annual U.S. syndicated lending remains high historically with the breadth and depth of the investor base increasing tremendously. The institutionalization of the asset class has led to growing demand from a wider array of investors including structured vehicles like CLOs, pension funds, endowments, sovereign wealth funds, insurance companies and more.
The loan market is no longer insulated from external market shocks, and borrower demand for loans and lenders’ willingness to lend are impacted by exogenous macro and geopolitical events, leading to big swings in loan issuance. Barza noted that in recent years, sponsors began turning to the direct lending market to finance large buyouts. Direct lenders work in tandem with banks or club up transactions given their growing capacity to hold bigger chunks of deals. Larger borrowers are also moving into direct lending/ private credit. Speed of execution and ease could be compelling reasons for borrowers moving into direct lending. A smaller group of lenders would take less time to hold discussions vs. larger numbers of possibly both first- and second-lien investors.
The Summer Series is ideal for new entrants or those with one- or two-years’ experience in the loan market. With more than 1200 members registered to participate in the credit agreement portion of the series today (and it continues for the rest of this week), there is a real need for this type of introductory level course. The Summer Series is open to all LSTA members, and there is no cost to attend. Attendees participating this week are encouraged to purchase a copy of The LSTA’s Complete Credit Agreement Guide which will be the textbook for several sessions. Click here for the Evolution of the U.S. Loan Market slides and here for the replay. Click here to register for the remaining sessions.
