Commercial loan spreads are trending higher for less-creditworthy borrowers with loans tied to the Prime rate.

In June 2018, the average spread above the Prime rate for a new loan for a 12-rated borrower was 187 basis points, up from 176 a year earlier. Meanwhile, the average spread for a 5-rated borrower stayed flat at 111 basis points, according to data collected by S&P Global Market Intelligence on nonsyndicated commercial loan portfolios made by participating banks.

The approximately 75-basis-point gap in spreads between a 5-rated borrower and a 12-rated borrower was the largest gap in at least two years. In June 2016, the gap was 54 basis points.

Meanwhile, the average spread for a loan tied to the London Interbank Offered Rate, which tend to go to larger borrowers, was 271 basis points for a 12-rated borrower in June, down from 277 a year earlier. The average spread for a 5-rated borrower remained flat at 201 basis points.

The 70-basis point gap in spreads between a 5-rated borrower and a 12-rated borrower was the largest gap since August 2016.

Data is collected by S&P Global Market Intelligence from select participating bank lenders both large and small and active in the commercial & industrial loan space. Coverage may change over time.

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