As fixed-income markets remain locked in global credit crisis, new S&P index takes a crack at leveraged loans using a form of mark-to-market pricing.
Standard & Poor's on Monday launched the S&P/LSTA U.S. Leveraged Loan 100 Index.
With close to $500 billion in assets, the leveraged loan market consists of loans made to speculative-grade borrowers. Most of those types of loans are senior secured floating-rate paper that the issuer can prepay with little or no restrictions.
S&P is working with the Loan Syndications and Trading Association, a trade group representing the corporate loan market.
In general, loans range in size from $50 million at the low end to upward of $10 billion on the high end. The new index is designed to track only the biggest and most liquid in the leveraged loan market.
Needless to say, in the current environment with credit markets only now starting to thaw, placing a value on leveraged loan issues has been difficult.
"Now, as much as ever, the market needs transparency," said Bram Smith, interim-executive director of the LSTA. "The S&P/LSTA U.S. Leveraged Loan 100 Index provides investors with a highly useful tool in assessing current prices in the marketplace."
The S&P/LSTA U.S. Leveraged Loan 100 Index is a market-value-weighted index designed to measure the performance of the U.S. leveraged loan market. As of September 30, 2008, the benchmark had a total market value of $210 billion.
The S&P/LSTA U.S. Leveraged Loan 100 Index reflects the total return performance of the largest facilities in the leveraged loan market.
It mirrors the market-weighted performance of the largest institutional leveraged loans based upon market weightings, spreads and interest payments.
Standard & Poor's calculates the new benchmark using mark-to-market pricing to value each tranche in the index. The pricing methodology is based on bid/ask quotes gathered from dealers.
Interestingly, the index is the second launched this month aimed at fixed-income markets by S&P. It comes at a time when Barclays Capital is still trying to sort through regulatory issues related to its purchase of Lehman Brothers. One of the biggest plums of that deal could well be its well-known lineup of fixed-income benchmarks. (See related story here).
-- This article was submitted by Murray Coleman. He can be reached at: [email protected].