How are benchmarks like the S&P UBS Leveraged Loan Index and S&P UBS Western European Leveraged Loan Index helping bring transparency to one of the largest fixed income markets? Take a fundamental look at leveraged loans with Marco Pouw, S&P DJI’s Director of Fixed Income Indices.
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Jenny Ellice:
Leveraged loans have surpassed U.S. high yield bonds as one of the largest segments of the fixed income market, totaling USD 1.5 trillion in market value. Yet, for some market participants, the asset class remains underexplored.
I'm Jenny Ellice from Asset TV, and joining me today is Marco Pouw, Director of Fixed Income Indices at S&P Dow Jones Indices, to unpack the fundamentals of leveraged loans and how they can be effectively tracked through transparent, rules-based benchmarks. Marco, it's good to have you with us today.
Marco Pouw:
Thank you.
So, let's start off with some basics. What exactly are leveraged loans, and how are they being used today? Leveraged loans are often defined as loans to companies with large amounts of debt relative to the value of their assets, or loans to companies with a poor history in making the required interest payments or redemptions.
In spite of these characteristics, some investors consider leveraged loans attractive because of the relatively high interest rates and because of some structural features, such as security over corporate assets. But, regarding performance, one may want to compare the S&P UBS Leveraged Loan Index to the iBoxx Global Developed Markets High Yield Index.
Over the decades prior to September 2025, the total performance of the S&P UBS Leveraged Loan Index was 68%, just 2% below the performance of the iBoxx Global Developed Markets High Yield Index over the same period. As for application, leveraged loans are often used in mergers, acquisitions and recapitalizations. A good example of a leveraged loan would be a loan used by a private equity firm to finance the acquisition of a company in a leveraged buyout.
Jenny Ellice:
Well, there has been significant growth in the leveraged loan market in recent years. But, putting growth to one side, how would you say this has evolved, and also, how do they differ from traditional fixed income assets?
Marco Pouw:
Collateralized loan obligations (CLOs) have been a major driver of investments in leveraged loans. An article by the Loan Syndications and Trading Association (LSTA) of December last year mentions that USD 1 trillion of U.S. loans were held by U.S. CLOs. Well, in turn, CLO securities are predominantly held by institutional investors.
Lately, we've seen high-percentage growth in ETFs and mutual funds, widening the investor base to financial advisors and individuals. However, these activities are still in the single-digit percentages of the total market size.
A major development in leveraged loans has been the rise of private credit and the continued growth in the syndicated loan market. An article by the Fed of last year sized the private credit market in the U.S. at USD 1.3 trillion. In the same year, the S&P UBS Leveraged Loan Index for USD-denominated syndicated loans reached USD 1.4 trillion.
So, how do these activities relate? In the past, banks would structure a leveraged loan for a borrower. The banks would commit to the borrower to make the loan, and they would then sell the loan to investors. We then speak of syndicated loans, or broadly syndicated loans. However, an asset manager could also set up a leveraged loan for a borrower. Lately, in the past decades, some specialized asset managers have been doing just that.
We then speak of private credit or direct lending. For borrowers, that has meant more options. So, recently, we've seen syndicated loans being refinanced by private credit loans, and, conversely, private credit loans being refinanced with syndicated loans.
Jenny Ellice:
Well, historically, the leveraged loan space has been a difficult market to measure. So, how is indexing helping to bring about transparency, and what are some of the key metrics the S&P UBS Leveraged Loan Indices provide?
Marco Pouw:
Our indices go a long way. The oldest one started in January 1992. It was recently renamed from Credit Suisse Leveraged Loan Index to the S&P UBS Leveraged Loan Index. At the start, in 1992, it had only 18 loans. Performance numbers were published monthly, at month-end. And, that lasted until 2007. Nowadays, our loan indices cover almost 2,000 loans, and performance numbers are published daily. We publish performance numbers in six currencies, with FX hedging or without. We also measure yields and discount margins across a number of time horizons, based on current loan prices.
And, a particular challenge for us, as an index administrator, is that loans are private instruments. This means that life cycle events, such as coupon fixings or redemptions, refinancings, restructurings, are not necessarily visible to anybody other than the lenders and the borrower. Fortunately, S&P Dow Jones Indices has access to excellent data sources in other divisions of S&P Global, and that has helped us to address this challenge.
Jenny Ellice:
So, finally, how is S&P Dow Jones Indices building index solutions and developing indices that really stand out from other leveraged loan benchmarks?
Marco Pouw:
I should like to mention three aspects. Firstly, as noted before, S&P Dow Jones Indices has excellent data sources in other divisions of S&P Global. This concerns daily loan pricing and, also, certain sorts of loan reference data.
Secondly, we offer a broad range of loan indices. We have very broad indices, and we have a few targeted indices. Good examples of the broad indices are the S&P UBS Leveraged Loan Index, which comprises around 1,500 USD-denominated loans, and the S&P UBS Western European Leveraged Loan Index, which comprises around 500 loans to borrowers in Western Europe, denominated in euros, pounds and dollars.
We also have a very targeted index. A good example is the S&P UBS USD Liquid Leveraged Loan Index, formerly called the iBoxx USD Liquid Leveraged Loan Index. It's well known. It's been going on for a few years. It's often used as a reference in total return swaps, as traded by leading dealers.
Finally, our loan indices have a long history. The main indices started in the 1990s. So, they offer unique insights in the evolvement of the loan market.
Jenny Ellice:
Marco, thank you. A really interesting discussion on how leveraged loan indices can really provide transparency, consistency and structure to a market that's, historically, perhaps, been hard to track. So, thank you.
Marco Pouw:
Thank you.
Jenny Ellice:
Well, to explore S&P Dow Jones Indices' full range of leveraged loan indices, review the latest performance dashboards and access additional insights, you can visit the link below.
spglobal.com/spdji/fixed-income
Thanks for watching and bye for now.
