Leveraged loans or Senior Loans once an obscure area in Fixed Income space has seen real growth in assets inflow in last couple of years. Lipper reported a 95 week of net inflows in loan funds that ended in April of this year. What are senior loans and what makes them so attractive in this market.
Senior secured loans: Leveraged Loans or senior loans are on top of a company’s capital structure so they are the first to be repaid before other debt obligations and equity holders.
Higher yields: Most of the debt issued under this category is below investment-grade, thus the securities have higher than comparable investment grade instruments.
Floating rate: Coupon is floating rate, generally pegged to 3 month LIBOR resetting quarterly or on a preset frequency with 0.25 duration, thus the interest rate risk is minimum.