Leveraged Loans Market Synopsis

The team's investment approach toward leveraged loans encompasses the following:
  • Senior secured loan position in the capital structure provides downside protection
  • Lien loans generally have higher recoveries on default than high yield bonds
  • Potential to benefit from rising interest rates as a result of floating rate coupon
  • Greater covenant protection relative to high yield bonds
  • Claims on collateral estimated to exceed the par value of the loan
  • BB- and B-rated loans generally trade at yields of 3.5% to 5.0%
  • With few exceptions, loans have been a lower volatility asset class compared to high yield bonds:
    • Senior secured position in capital structure reduces credit volatility
    • Floating rate reduces interest rate volatility

Investment Philosophy

We believe that leveraged loan performance is driven by the management of credit risk at every stage of the investment process. At the center of our approach is continuous fundamental evaluation of securities guided by macro insights. Portfolio construction is a dynamic process that reflects our assessment of the direction and trend of credit fundamentals.

Investment Approach

  • Portfolio management team sets the investment strategy
  • Sector allocation is driven by bottom-up research and top-down macroeconomic decisions
  • Fundamental research drives process
  • Portfolios are diversified across a range of sectors and securities
  • The strategy may occasionally invest in investment grade securities that meet yield parameters
  • Risk management is embedded throughout the process and seeks to limit downside risk relative to the benchmark