Chapter 8 - Secondary loan markets

Abstract

The introduction of credit ratings into the syndicated loan markets in the past five years is symptomatic of the changes in the syndicated loan market from a traditional, bespoke relationship-based “bank loan market” to a more commoditized investor-driven “loan market.” This evolution first manifested itself in the US markets and is now striving to impose itself in the developed capital markets in Europe. The evolution of the US syndicated loan market from a private, relationship oriented credit market to a commoditized securities-style market has been proceeding steadily for several years. One noteworthy aspect has been the dramatic increase in the number of credit ratings assigned to syndicated loans. This is illustrated by the growth in rating syndicated loans—S&P notes that starting from a base of zero, six years ago, it now rates the loans of about 1200 companies. The European market is now showing clear signs of building the core characteristics of a more investor-driven loan market. However, many of these features are recent arrivals and require time and market application to season before other essential features of such a market—in particular comparable pricing data and secondary trading liquidity—develop and provide necessary support.