Lehman Brothers last week launched a U.S. high-yield loan index, in order to measure the performance of the high-yield floating-rate leveraged loan market. It will consist of U.S. dollar-denominated floating-rate loans including high-yield corporate borrowers. Initially, the index will cover 470 term loan tranches and is projected to have a market value of approximately $206 billion at inception. The index history will start with information from Jan.1, 2006. A primer should be available this week.
"We are always trying to identify areas of the market that we want to map," said Nicholas Gendron, global head of fixed-income indices. "We are in the business of providing indices and providing ones to the more important part of fixed income and this was an area we wanted to fill." The group spent over a year working on the project and he explained that although Lehman may not be the first index in the market, clients will sometimes look for the bank to put one out so they can be consistent with all of the indices they use. After just a day he had already received inquiries from investors.
In order to be index-eligible, a loan tranche must have at least $150 million outstanding. It must be rated BB+ or below and have a one year maturity. The facility must be either senior secured, first or second lien or unsecured but broadly held by investors. It must have a minimum spread of LIBOR plus 125 basis points.