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Leveraged Loan Recoveries - Middle Market Bests Large-Cap Deals

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As institutional investors continue their search for yield, middle market loans - those to smaller borrowers - are increasingly in focus. LCD's Kelly Thompson looks at recoveries on market middle …

As institutional investors continue their search for yield, middle market loans - those to smaller borrowers - are increasingly in focus. LCD's Kelly Thompson looks at recoveries on market middle loans, vs. their large-cap cousins, and finds some surprising results.

Published in: Business, Economy & Finance
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  • 1. Leveraged Loans
 Middle Market Recoveries Best Large-Cap Deals
  • 2. 60 68 75 83 90 81% 74% Large Cap Middle Market Recoveries on Defaulted Loans, 2010-13 Source: S&P Capital IQ/CreditPro loans ≥ $200M loans < $200M
  • 3. 0% 20% 40% 60% 80% 6/13 7/13 8/13 9/13 10/13 11/13 12/13 1/14 2/14 3/14 4/14 5/14 Large Cap Middle Market Covenant-lite, as a share of loan market Source: S&P Capital IQ/LCD This chart: middle market = $350M loan and less
  • 4. 0.0% 3.5% 7.0% 10.5% 14.0% 1/10 5/10 9/10 1/11 5/11 9/11 1/12 5/12 9/12 1/13 5/13 9/13 1/14 5/14 Large Cap Middle Market Leveraged Loan Default Rate 2010-2013 Energy Future Holdings (TXU) 
 - $19.5B Source: S&P Capital IQ/LCD
  • 5. 0.0% 3.5% 7.0% 10.5% 14.0% 1/03 1/04 1/05 1/06 1/07 1/08 1/09 1/10 1/11 1/12 1/13 1/14 Large Cap Middle Market Energy Future Holdings (TXU) 
 - $19.5B Source: S&P Capital IQ/LCD Leveraged Loan Default Rate 2003-2013
  • 6. Overall Leveraged Loan Default Rates • 2010-2013: A period of calm re loan defaults " • At end of 2010, after emerging from credit crisis, overall default rate = 4.5% " • Remained near/below historical lows through 2013 (1.9%) " • Higher defaults for middle market loans? Large cap loans enjoyed looser structures (cov-lite), meaning avoiding default was easier
  • 7. © 2014 McGraw Hill Financial Inc.

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