The leveraged loan market has more than doubled in the past decade to US$872 billion, with over 1,000 issuers. Steven Oh, Global Head of Credit and Fixed Income at PineBridge Investments, provides his views on the current state of the loan market, and whether this opportunity is attractive and sustainable.
Q: Why are loans an attractive asset class in the current environment?
A: The outlook for US GDP growth for 2016, while weakening somewhat recently, is still in the 2%-2.5% range, providing a stable backdrop for leveraged-loan issuers. The unemployment rate should trend even lower and wage growth is expected to accelerate modestly. Coverage ratios (EBITDA-capital expenditures/interest) are near all-time highs. The current default rate of 1.33% is still significantly below its historical average and is forecast to increase at a gradual rate1 .
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