Total institutional leveraged loan new issuance in the first nine months of 2017 has already surpassed the previous calendar year record set in 2013. However, with refinancing and repricing transactions accounting for over 70% of such volume, on a net basis, new issuance volume is less extreme. Examining second-lien loans specifically, issuance has increased significantly this year, more than doubling calendar year 2016 total volume during the first three quarters.
“If you fall, I’ll be there” — a floor
Like a lot of jokes, good or bad, truth is at the core of the statement above, whether with respect to gravity or the protective financial mechanism launched in the loan market following the financial crisis of 2008 — the LIBOR floor (herein referenced simply as the “floor”). Instead of relating to a falling object, however, we apply the quote to short-term interest rates (e.g., LIBOR) and a derivative instrument (the floor) that is conditionally declaring its presence should rates drop.