Corporate lending is on the rise, which may open up opportunities for savvy fixed-income investors looking to earn extra yield. Specifically, investors can consider Senior Loans to gain exposure to this loan growth.
“Demand for business loans is rising in the United States as an economic recovery stimulates consumer spending and encourages businesses to increase their inventories, fueling optimism that it will stimulate growth for banks in 2022,” said a report. Reuters article.
“People are restocking,” said Terrance Dolan, chief financial officer of US Bancorp. “They’re starting to make business investments ahead of consumer spending and economic growth that they see in 2022.”
Fixed income investors seeking business lending opportunities may want to consider a ETFs which highlights the importance of being in a senior loan position. It all comes in the convenience of a ETFs packaging with the Senior Loan from Invesco ETFs (BKLN ).
BKLN seeks to follow the investment results of the S&P/LSTA US Leveraged Loan 100 Index. The fund’s advisor and sub-advisor define senior loans as including loans known as leveraged loans, bank loans and/or variable rate loans.
Banks and other lending institutions generally provide senior loans to corporations, partnerships or other entities. Senior Loans are typically used for financing corporate recapitalizations, acquisitions, leveraged buyouts and refinancing. BKLN’s loan portfolio will include the purchase of loans from banks or other financial institutions through assignments or equity participations.
The inherent risks associated with senior loans are similar to the risks of junk bonds, but have a priority. In the event of default where the company is forced to sell its assets in a liquidation scenario, the senior loan will be paid first. Additionally, Senior Loans are asset-backed unlike junk bonds, making them a more attractive investment option when building a loan portfolio.
BKLN may acquire a direct interest in a Senior Loan from the Agent or another lender through an assignment or an indirect interest in the loan by participating in another lender’s portion of a loan. BKLN sells portfolio receivables by assignment, but may also assign interests in receivables to fund claims.
Of course, fixed income investors want to know what yield ETFs can bring. Since February 7, the 30-day period SECOND yield on BKLN is close to 3%.
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