Broadly Syndicated Loans: market size, structure and historical return profile
Standing at $2 trillion globally, Broadly Syndicated Loans (BSLs) are generally institutional, floating-rate debt issued to borrowers classified as below investment-grade (aka high yield). Traditionally, BSLs have often been viewed as a financing pool for leveraged buyouts (LBOs). Though, market evolution and evidence suggest that BSLs may have broadened in issuer type and investor base. This may be driven by:
- Floating-rate coupons (and consequently, low duration)
- Secured payment rank
- Potential credit diversification
Recent performance and duration
In comparison, US High Yield, US Floating Rate, US Aggregate and US Treasury delivered returns of 35.77%, 23.01%, 9.21% and 6.46% respectively. While most other asset classes posted intermittent positive and negative returns over recent months, BSLs stood out with 21 consecutive monthly positive returns as of February 2025, before being interrupted by negative returns in March (-0.29%) and April (-0.17%). Given floating-rate coupons, durations of both LOAN Index and US Floating Rate Index were close to zero. In comparison, durations of US High Yield, US Aggregate and US Treasury stood at 3.02, 6.08 and 5.89 respectively as of April month-end.
Market composition: what’s inside the LOAN index?
As of April 2025 month-end, the Bloomberg US Leveraged Loan Index included over 1,300 loans from over 1,100 borrowers, with $1.3 trillion in market value. Certain index breakdowns (by % market value) are below:
- Secured payment rank, with 98% first-lien loans, 2% second-lien
- Rating Distribution: 67.66% B-rated, 25.39% Ba-rated, 6.19% Caa, and 0.77% Ca-D
- Sector Allocation: 87% Industrials, 11% Financials, 2% Utilities
- Top Sub-Sectors: Technology (21%), Consumer Cyclical (19%), and Capital Goods (13%)
Potential credit diversification
Payment rank of BSLs in LOAN Index is secured, with the majority of loans classified as first lien, and may be notable in comparison to high yield bonds (Figure 3), which are often unsecured. Divergence of sub-sector and rating bucket allocation vs. high yield bonds is also noteworthy. For example, the Technology sub-sector makes up 7% of high yield bonds vs. 21% of BSL market (see Figure 4). While B-rated loans make up around 70% of LOAN Index as of April month-end, they comprise less than 40% of the HY Index. Structural differences in payment rank, as well as divergence in composition across sectors and rating buckets, may offer potential credit diversification.
Potential risks
BSLs are not without risk, however. A rally in interest rates would negatively impact floating-rate coupons, making it less appealing to crossover investors. Further, if holding individual loans, it should be noted that trade settlement times can range from a week to multiple weeks, while bond trades settle in T+1. Finally, Collateralized Loan Obligations (CLOs) hold 65%-70% of the BSL market, and while having a captive investor is generally positive for the BSL market, any material disruption to the CLO market could put stress on the BSL market.
Conclusion
Floating-rate coupons and consequently strong performance in a high interest rate environment, coupled with secured payment rank and potential credit diversification, are structural traits that can influence how BSLs perform relative to other asset classes.
