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Commercial loan spreads drop for smaller, riskier borrowers in July

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Commercial loan spreads drop for smaller, riskier borrowers in July

After trending higher for the first six months of 2018, Prime-linked commercial loan spreads dropped for less creditworthy borrowers in July.

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In July, the average spread above the Prime rate for a new loan for a 12-rated borrower was 181 basis points, the lowest spread since February, but still an 8-basis-point increase year over year. Meanwhile, the average spread for a 5-rated borrower increased by 1 basis point to 111 basis points, according to data collected by S&P Global Market Intelligence on nonsyndicated commercial loan portfolios made by participating banks.

The average spread for a loan tied to the London Interbank Offered Rate, which tends to go to larger borrowers, was 275 basis points for a 12-rated borrower in July, unchanged from a year earlier. The average spread for a 5-rated borrower also remained flat year over year at 201 basis points.

In the mining sector, which includes oil and gas extraction, there was an interesting trend among both Prime- and LIBOR-linked loans in July. For 5- and 6-rated Prime-linked borrowers, rate spreads fell year over year by 14 and 15 basis points, respectively. For less creditworthy borrowers, rate spreads jumped 13 to 25 basis points.

For LIBOR-linked borrowers in the mining sector, rate spreads stayed almost the same year over year for borrowers at either end of the credit spectrum, but fell by 16 to 30 basis points for borrowers between a 7-rating and an 11-rating.

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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Click here to access 2018 commercial loan pricing data.