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.


The Alternative Thinking Week in Review market commentary and any accompanying data (“Market Commentary”) is for informational purposes only and shall not be considered an investment recommendation or promotion of FS Investments or any FS Investments fund. The Market Commentary is subject to change at any time based on market or other conditions, and FS Investments and FS Investment Solutions, LLC disclaim any responsibility to update such Market Commentary. The Market Commentary should not be relied on as investment advice, and because investment decisions for the FS Investments funds are based on numerous factors, may not be relied on as an indication of the investment intent of any FS Investments fund. None of FS Investments, its funds, FS Investment Solutions, LLC or their respective affiliates can be held responsible for any direct or incidental loss incurred as a result of any reliance on the Market Commentary or other opinions expressed therein. Any discussion of past performance should not be used as an indicator of future results.