The Latest Leveraged Loan Industry Statistics Explained
As of 2021, the estimated size of the U.S leveraged loan market is a staggering $1.2 trillion.
The statistic that as of 2021, the estimated size of the U.S leveraged loan market is $1.2 trillion indicates the substantial scale and importance of the market within the U.S. economy. Leveraged loans are typically offered to companies with higher levels of debt or weaker credit ratings, making them riskier assets. The size of the market being described as ‘staggering’ suggests that it has significant influence in enabling companies to finance growth, acquisitions, and other business activities. This statistic is crucial for understanding the depth and breadth of the leveraged loan market in the U.S, highlighting its significant role in supporting corporate financing needs and driving economic activity.
About 85% of leveraged loans are “covenant-lite,” meaning they lack traditional loan protections for lenders, as of 2020.
The statistic that about 85% of leveraged loans are “covenant-lite” as of 2020 signifies a notable trend in the lending industry where the majority of these loans are being issued without traditional loan protections for lenders. Covenant-lite loans typically have fewer requirements and restrictions for borrowers compared to traditional loans, which can expose lenders to higher levels of risk. This high prevalence of covenant-lite loans suggests that lenders may be willing to take on more risk in exchange for higher potential returns, while borrowers may benefit from more flexibility and less stringent lender oversight. However, this trend can also raise concerns about the overall quality and resilience of the leveraged loan market, as the lack of traditional loan protections could leave lenders more vulnerable in the event of borrower default or financial distress.
Despite global economic uncertainty, leveraged loan issuance reached $646 billion in 2020.
The statistic “Despite global economic uncertainty, leveraged loan issuance reached $646 billion in 2020” highlights the surprising resilience and robust performance of the leveraged loan market amidst challenging economic conditions. Leveraged loans are typically extended to companies with below investment-grade credit ratings, making them riskier investments. The fact that such a significant amount of leveraged loans were issued in 2020 suggests that despite the overall economic uncertainty brought on by the COVID-19 pandemic, lenders and investors were still willing to provide financing to these higher-risk borrowers. This statistic indicates a level of confidence in the market’s ability to weather the economic storm and may reflect strategies employed by companies to bolster liquidity and manage their financial needs during turbulent times.
In 2019, leveraged finance issuance in Europe fell 25% from 2018, to €290 billion.
The statistic indicates that in 2019, the total amount of leveraged finance issuance in Europe decreased by 25% compared to the previous year, amounting to €290 billion. Leveraged finance refers to borrowing by companies or individuals with high levels of debt or financial leverage. The significant drop in issuance suggests a decrease in the demand for leveraged financing in Europe during 2019, which could be due to various factors such as economic uncertainties, tightening lending conditions, or changes in market sentiment. This statistic provides insight into the financing trends in the European market and may reflect the overall economic conditions and risk appetite of investors at that time.
Leveraged loan outstandings in the European market amassed to over €200 billion in 2020.
This statistic indicates that the total amount of leveraged loans held in the European market exceeded €200 billion as of 2020. Leveraged loans are a type of debt that is extended to companies or individuals with already high levels of debt or a poor credit rating. The fact that the outstandings of leveraged loans reached such a substantial amount highlights the significant presence and utilization of this type of financing in the European market. This data suggests that there is considerable demand for leveraged loans among businesses and investors in the region, pointing towards a reliance on leverage as a means of funding investment and growth opportunities.
In 2019, 72% of U.S. leveraged loans were covenant-lite.
In 2019, the statistic indicating that 72% of U.S. leveraged loans were covenant-lite suggests that a significant majority of these loans were issued without certain traditional protective measures for lenders. Covenant-lite loans typically have fewer restrictions and fewer requirements for the borrower compared to standard loans, potentially increasing risks for lenders. This statistic may reflect a trend in the financial industry towards looser lending standards and increased risk-taking behavior, which could have implications for the overall stability of the leveraged loan market and the financial system as a whole.
Leveraged buyouts (LBOs) made up 61% of total institutional issuance in 2019.
This statistic indicates that in 2019, 61% of the total institutional issuance – the amount of new financial securities, such as bonds or stocks, that are offered to investors by institutions like investment banks or corporations – was attributed to leveraged buyouts (LBOs). Leveraged buyouts occur when a company is acquired using a significant amount of borrowed funds, typically with the target company’s assets serving as collateral for the loan. This high percentage suggests that LBOs were a prevalent financial strategy in 2019, with a significant portion of new securities being issued to facilitate these types of transactions, showcasing the popularity and prevalence of leveraged buyouts within the institutional investor community during that year.
Institutional leveraged loan default rate ended 2020 at 4%, highest level since 2010.
The statistic that the institutional leveraged loan default rate ended 2020 at 4%, the highest level since 2010, indicates a notable increase in the proportion of leveraged loans issued by financial institutions that have defaulted on their repayment obligations. This suggests a concerning trend in the institutional leveraged loan market, potentially attributed to the economic disruptions caused by the COVID-19 pandemic. A higher default rate can indicate increased financial stress among borrowers, which may reflect challenges in meeting debt obligations due to weakened economic conditions. Monitoring these default rates is crucial for assessing the overall health and stability of the leveraged loan market and understanding the potential impact on financial institutions and the broader economy.
In EU, the leveraged loan default rate was 2.3% in 2020.
The statistic “In the EU, the leveraged loan default rate was 2.3% in 2020” indicates the percentage of leveraged loans within the European Union that were not repaid as agreed during the year 2020. A leveraged loan is a type of loan extended to companies or individuals that already have a significant amount of debt or a poor credit history. A default rate of 2.3% suggests that a small proportion of these loans in the EU defaulted in 2020, which may have implications for lenders, borrowers, and the overall financial stability of the region. Monitoring default rates is important for assessing credit risk and the health of the financial system to make informed decisions and manage potential risks effectively.
At the end of 2020, 63% of outstanding leveraged loans were rated single-B, representing the biggest portion of the market.
This statistic indicates that by the end of 2020, the majority of outstanding leveraged loans were rated as single-B, accounting for 63% of the market. A single-B rating is typically considered below investment grade, signifying a higher credit risk associated with these loans. This suggests that a significant portion of leveraged loans in the market are considered more speculative and potentially riskier investments. Investors holding these loans may face greater uncertainty in terms of repayment and are exposed to higher default risks. It is crucial for investors and financial institutions to closely monitor these loans and assess the associated risks to make informed decisions about their investment portfolios.
U.S. leveraged loan market returns stood at 2.52% in 2020, despite the global pandemic.
The statistic that U.S. leveraged loan market returns were 2.52% in 2020, despite the global pandemic, indicates that this particular financial market sector had a positive performance during a challenging economic environment. Leveraged loans are typically high-yield, high-risk debt instruments issued by companies with below-investment grade credit ratings. The fact that these returns were positive suggests that investors in the U.S. leveraged loan market were able to generate a modest profit or at least limit their losses despite the economic disruptions caused by the COVID-19 pandemic. This statistic highlights the resilience and relative attractiveness of leveraged loans as an investment option, even in times of crisis.
High yield bonds issuance surpassed leveraged loans in 2020, reaching $435 billion.
The statistic highlights that in 2020, the total amount of high yield bonds issued exceeded that of leveraged loans, reaching a total of $435 billion. This suggests a trend where companies and organizations opted to raise funds through high yield bonds rather than leveraged loans during that specific period. High yield bonds typically offer higher interest rates to compensate for the greater risk involved, making them an attractive option for borrowers with lower credit ratings or those seeking higher returns. The shift in issuance towards high yield bonds over leveraged loans in 2020 may indicate market preferences based on perceived risk and return dynamics, as well as prevailing market conditions at the time.
As of 2019, retail investors held approximately 21% of outstanding leveraged loans.
The statistic implies that as of 2019, retail investors collectively held around 21% of the total outstanding amount of leveraged loans in the market. Leveraged loans are a type of debt that is provided to companies with high levels of debt or weak credit ratings. Retail investors refer to individual investors who invest in the financial markets on their own behalf, rather than institutions or professional money managers. The fact that retail investors held a significant portion of leveraged loans suggests that individual investors were actively participating in the leveraged loan market and taking on the associated risks and potential returns.
The value of leveraged loan defaults in Europe is expected to reach €7 billion in 2021.
The statistic indicates that the total value of defaults on leveraged loans in Europe is projected to reach €7 billion in the year 2021. Leveraged loans are loans extended to companies or individuals that already have high levels of debt or a poor credit history, typically with higher interest rates to compensate for the additional risk. A rising default rate on these loans suggests that a significant number of borrowers are facing financial difficulties and are unable to meet their repayment obligations. This statistic is concerning as it may signal economic challenges and potential instability in the European financial markets in 2021.
Leveraged loan issuance to speculative-grade U.S. companies totaled $274 billion in 2019.
This statistic indicates that in 2019, U.S. companies with lower credit ratings (speculative-grade) borrowed a total of $274 billion through leveraged loans. Leveraged loans are a type of loan extended to companies or individuals that already have significant amounts of debt or a poor credit history, making them a riskier form of lending. The substantial amount of leveraged loan issuance to speculative-grade companies suggests that these firms were relying heavily on debt financing to fund their operations, growth initiatives, or other financial needs. This increased borrowing by lower-rated companies can be seen as a sign of potential financial distress or a strategy to take advantage of low interest rates, but it also raises concerns about the stability and creditworthiness of these firms in the event of economic downturns or adverse financial conditions.
As of July 2021, research firm LCD expects the US leveraged loan default rate to drop to 2.25% by year-end.
The statistic indicates that as of July 2021, research firm LCD anticipates a decrease in the default rate for leveraged loans in the United States. Specifically, the firm projects that the default rate will fall to 2.25% by the end of the year. This prediction suggests that fewer borrowers in the leveraged loan market are expected to default on their loan obligations compared to previous levels. The forecast could be influenced by various factors such as improving economic conditions, increased lender scrutiny, or borrower refinancing efforts. Overall, a lower default rate is generally viewed as a positive sign for the financial health and stability of the leveraged loan market in the US.
The U.S. leveraged loan market produced a 20% return in 2019, its best performance since 2009.
The statistic indicates that in 2019, the U.S. leveraged loan market experienced significant growth and produced a 20% return on investments. This performance was the strongest recorded since 2009, suggesting a successful year for investors in this market. Leveraged loans are typically loans provided to companies or individuals with already high levels of debt or a poor credit history, offering higher potential returns but also higher risks. The 20% return signifies the average increase in value or profit enjoyed by investors who participated in this market in 2019, outperforming the returns seen in previous years.
Leveraged lending increased about 150% in the 10 years before 2019, enabling more companies to take on higher levels of debt.
The statistic that leveraged lending increased by about 150% in the 10 years leading up to 2019 indicates a significant rise in the volume of loans provided to companies with already high levels of debt or weaker credit profiles. This surge in leveraged lending enabled more companies to access additional funding despite their existing debt burdens, allowing them to take on higher levels of leverage. While this increased availability of credit may have supported business expansion and investments, it also raised concerns about risks associated with excessive debt levels and potential vulnerabilities in the financial system. This trend highlights the importance of monitoring leveraged lending practices and their implications for financial stability and economic growth.
The average maturity for a leveraged loan in 2019 was approximately six years.
This statistic indicates that the average duration for a leveraged loan in 2019 was around six years. Leveraged loans are a type of loan extended to companies or individuals that already have high levels of debt or poor credit history, and they typically carry higher interest rates as a result. The fact that the average maturity for these loans is six years suggests that borrowers were seeking longer-term financing solutions in 2019, potentially in response to favorable market conditions such as low interest rates or to fund long-term projects or investments. This statistic can be useful for lenders, borrowers, and investors in understanding the typical loan terms in the leveraged loan market during that period.
References
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5. – https://www.www.federalreserve.gov
