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Public Fixed Income

Senior Secured Loans: 101

June 2024 – 6 min read

At $1.8 trillion, the global senior secured loan market has grown substantially over the last 15 years. Here, we break down the key characteristics of the asset class and touch on how investors can access the many potential benefits on offer.

Senior secured loans in the broadly syndicated market offer a unique blend of attractive yield potential with some protection against both credit and interest rate risk. At a high level, the asset class has the potential to provide attractive risk-adjusted returns and a number of other benefits, including:

• Multiple layers of credit risk protection,
• Security in the form of asset-backing and covenant restrictions,
• Low relative volatility,
• Relative value opportunities,
• Greater transparency and liquidity relative to private credit.

What Are Senior Secured Loans?

Senior secured loans are commonly issued by below-investment grade companies and can be used for a range of purposes, from financing acquisitions, to refinancing existing debt, to supporting expansion plans. The majority of loans are issued for privately held companies and therefore come with the support of a private equity sponsor or sponsors. These loans pay a floating interest rate—a base rate (usually SOFR or Euribor), plus an additional fixed margin—to compensate for the credit risk of lending to a below-investment grade company.

Broadly syndicated loans are underwritten by a lead bank and syndicated (or sold) to other banks and institutional investors. Unlike the private credit or direct lending market, broadly syndicated loans are often syndicated to a large number of lenders—commonly 100 or more. As a result, there is an active secondary market for these loans. As an example, more than $700 billion of loans traded in the U.S. during 2023, which represented just over half of the market.1 This provides investors with access to liquidity even during challenging periods, as well as greater transparency as daily mark-to-market valuations reflect the view of perceived risk and relative value of the loan.

1. Source: LSTA Monthly Trade Stats. As of May 15, 2024.

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Casey McKinney

Managing Director

Chris Sawyer

Head of European High Yield

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