6.64% 5.87% 6.90% 4.76% THE YIELD PREMIUM ON MIDDLE MARKET LOANS HAS INCREASED IN RECENT MONTHS Sources: S&P Capital Market Intelligence. Large corporate loans represented by the S&P/LSTA Leveraged Loan 100 Index. Middle market loans represented by the S&P/LSTA Leveraged Loan Index (middle market component, which is based on companies with annual EBITDA of $50 million or less). Average new issue yields (%) Middle market loans Large corporate loans January 2016 January 2017 September 2016 4.5 5.0 5.5 6.0 6.5 7.0 7.5

  • With more-limited sources of financing, middle market companies often must pay higher interest rates than large corporate borrowers of similar credit quality.
  • This “middle market premium” averaged approximately 120 basis points through 2016, but it declined to as little as 74 basis points in September 2016 as yields across the credit spectrum fell.1
  • Since its September trough, new issue yields on large corporate loans have continued to decline while those on middle market loans have increased. As of January 2017, the yield spread between the two reached 214 basis points, or almost 1.00% above its 2016 average.1
  • A decline in yields across the broadly syndicated market can explain part of this divergence. However, a wave of repricing activity, which has intensified since late 2016, has helped exaggerate the spread between large corporate and middle market loans.
  • In fact, approximately $61 billion in loan repricing activity took place in January 2017.2 This was the second-highest amount on record, behind only the $67 billion in loans repriced in February 2013.2

1 S&P Global Market Intelligence.
2 J.P. Morgan High-Yield and Leveraged Loan Morning Intelligence, January 30, 2017.

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