Over the last 12 months to July 31, commercial loans have become more expensive for smaller borrowers and less expensive for larger, riskier borrowers.
According to data collected by S&P Global Market Intelligence on nonsyndicated commercial loan portfolios, loan spreads on London Interbank Offered Rate-linked commercial loans — which tend to be offered to larger borrowers — have increased slightly or remained flat for borrowers with a risk-rating between "5" and "8," but have actually decreased for borrowers rated "9" or more. In July 2017, the average spread above LIBOR for a new loan for a 5-rated borrower was 204 basis points, compared to 189 basis points a year earlier. In contrast, the average spread for a 12-rated borrower was 275 basis points in July 2017, 15 basis points lower than it was a year before.
S&P Global Market Intelligence aligns each participating bank's internal risk ranking to a 16-point risk scale with "1" being the most creditworthy and "12" being the lowest origination grade. Grades below 12 are in various states of default and delinquency. Since generally only 3% of loans originated are rated between a 1 and 4, this analysis focuses only on those loans ranked between 5 and 12.
For loans tied to the "Prime" rate — which tend to go to smaller borrowers — interest rate spreads have largely increased across the board year over year. In July, the average spread on a prime-linked loan to a 5-rated borrower was 110 basis points, compared to 94 basis points in July 2016. Similarly, the average spread for a 12-rated borrower was 173 basis points in July 2017, 22 basis points higher than a year earlier.
Data is collected by S&P Global Market Intelligence from select participating bank lenders active in the commercial & industrial loan space. Coverage may change over time.
To access the data underlying these graphs, click here.
Click here for last month's article on commercial loan pricing.