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Corporate Credit Highlights
Glossary of Terms
JUNE 2024

Corporate Credit Highlights

Highlights from investment-grade, bank-loan, and high-yield asset classes.

Monthly Return (%)
5/31/24
Year-to-Date Return (%)
5/31/24
Yield
5/31/24
Option-Adjusted Spread (BPS)
5/31/24
12/31/23
12/31/22
12/31/21
Investment-Grade Corporate Bonds
1.82
-1.12
5.47 1
80
93
121
87
Single A Bonds
1.82
-1.33
5.39
72
85
109
74
BBB Bonds
1.94
-0.68
5.71
104
121
159
115
1-3 Year Credit
0.79
1.27
5.37
45
58
61
35
7-10 Year Credit
2.09
-0.96
5.49
97
112
152
93
Long Credit
2.80
-3.84
5.71
105
117
157
130
Monthly Return (%)
5/31/24
Year-to-Date Return (%)
5/31/24
Yield
5/31/24
Option-Adjusted Spread (BPS)
5/31/24
12/31/23
12/31/22
12/31/21
Bank Loans 2
0.91
4.16
10.52
492
528
652
439
BB Loans 3
0.72
3.40
8.59
299
315
363
307
B Loans 3
0.96
4.25
10.41
481
496
691
444
Loans priced over $90 3
0.94
4.21
9.60
400
418
497
417
Loans priced up to and including $90 3
0.56
3.43
21.49
1589
1416
1419
1380
Issues over $1 billion 3
0.86
4.04
10.10
450
476
596
395
Issues $201 million to $300 million 3
0.78
4.48
13.69
809
882
932
639
Monthly Return (%)
5/31/24
Year-to-Date Return (%)
5/31/24
Yield
5/31/24
Option-Adjusted Spread (BPS)
5/31/24
12/31/23
12/31/22
12/31/21
High Yield
1.10
1.63
8.00 1
308
323
469
283
BB Bonds
1.21
1.40
6.70
181
201
295
194
CCC Bonds
0.44
1.57
12.37
746
776
1008
549
Intermediate High-Yield Bonds
1.10
1.67
8.00
307
323
471
285
Long High-Yield Bonds
1.06
-0.52
7.91
331
341
401
252

Source: Bloomberg, Credit Suisse and Morningstar® as of 5/31/24.

Investment-grade corporate bonds represent the Bloomberg US Credit Index and index components. This index measures the performance of investment grade, US dollar-denominated, fixed-rate, taxable corporate and government-related debt with at least 10 years to maturity. Bank loans represent the Credit Suisse Leveraged Loan Index and index components. This index is designed to mirror the investable universe of the U.S. dollar-denominated leveraged loan market. High yield represents the Bloomberg US Corporate High Yield Index and index components. This index covers performance for U.S. high-yield corporate bonds. An option-adjusted spread (OAS) is the measurement of the spread of a fixed-income security rate and the risk-free rate of return.

1 Yield quoted is yield-to-worst. Yield-to-worst is a measure of the lowest possible yield from purchasing a bond apart from a company defaulting.
2 Yields represent four-year effective yield. The effective yield is a financial metric that measures the interest rate (or coupon rate) return on a bond.
3 Yields represent three-year effective yield. The effective yield is a financial metric that measures the interest rate (or coupon rate) return on a bond.

HIGHLIGHTS

Investment Grade

  • JP Morgan Strategy on average new issue coupon vs. maturing bonds for May: “The average coupon of new issues in May was 5.7%, which is the highest average coupon month since last November.  Also, the differential between the coupon for bonds that priced in May and maturing bonds for the month was 237 basis points (bps) which was the widest gap since November of last year.  Year-to-date (YTD), this differential stands at 209 bps which compares to 225 bps last year, 91 bps in 2022 and -132 bps in 2021.” 1  
  • Barclays Strategy on investment grade (IG) mergers and acquisitions (M&A) activity: “We expect $1.8 trillion of M&A volumes in the next twelve months, up 15-20% year-over-year (y/y) from current last twelve-month (LTM) volumes. Our revised top-down model suggests that deal volume will pick up by 15-20% over the next year, as it has already been higher so far in 2024 compared with 2023. We think the recent uptick should persist, as conditions and optimism have improved and a very quiet 2023 left much pent-up deal activity.” 2

High-Yield Corporates

  • JPM Strategy on loan total return forecast: “The loan asset class is benefiting from elevated coupons and a Fed now expected to remain on hold until December. In addition, issuers are delivering solid earnings alongside a robust technical supported by retail inflows, a record pace of collateralized loan obligation (CLO) origination, and very little net new supply. And issuers are capitalizing on robust capital market conditions to refinance maturities and reduce the tail risk around future defaults. With a higher for longer rate narrative settling in, we raised our fiscal year 2024 (FY24) total return forecast for leveraged loans by 200 bps to 9.0%.” 3
  • According to JPM, the size of the U.S. institutional loan universe currently stands at $1.44 trillion.  The institutional loan universe has grown by $11 billion or 0.8% YTD. For context, the loan market contracted by $84 billion (or 5%) from June 2022 through year-end 2023 (YE23) after expanding by 11% per year over the prior decade. Constrained capital markets and cannibalization by the private credit space were the largest contributors to the contraction of the syndicated loan base the previous two years.4
  • LCD note on loan refinances (refis)/repricings: “Through May 2023, U.S. borrowers completed a record-crushing $452 billion of refinancings, repricings and maturity extensions combined in 2024, which is 26% ahead of the prior record pace in 2017, at $359 billion. To underscore the magnitude of this year’s activity, loan issuance to finance buyouts and other types of M&A activity has totaled just $45.2 billion so far this year.  Repricings, which allow the company to lower the borrowing spread on the loan via an amendment, have totaled $277 billion so far this year, the highest amount for any comparable period on record. In addition, with one week left until month-end, May volume already set a monthly record with $89.6 billion of term loans repriced via an amendment. On average, borrowers have been able to reduce spreads by 54 bps so far this year, translating into $1.35 billion of annual interest expense savings. So far in 2024, 21% of all outstanding first-lien term loans have been repriced.” 5

Bank Loans

  • BAML Strategy on yield and spread percentile ranks: “All-in yields remain attractive by historical standards, with the high-yield (HY) yield to worst (YTW) at 8.04% in the 65th percentile last 25 years. Other valuation metrics are tight, with nominal option-adjusted spread (OAS) at 320 bps 6th percentile, the liquidity premium (LP = OAS ex next-12m credit loss) at 206 bps = 7th percentile.”  6
  • Including distressed exchanges, the par-weighted U.S. high-yield bond and loan default rates decreased 34 bps and increased 36 bps month-over-month (m/m) to 2.02% and 3.28%, respectively, which are down 86 bps and up 1 bp since year-end. For context, the 25-year average HY and leveraged loan (LL) default rates are 3.4% and 3.0%, respectively.” 7
  • Citi strategy recap on supply: “Companies continue to take advantage of the open primary market, and refi activity remains the dominant use of proceeds. In May, 88% of the calendar was targeted for refinancing. 2024 remains the strongest refi year at 79%, although that may decrease if M&A/leveraged buyout (LBO) activity accelerates later this year.” 8

Definitions

  • Bank loans (also known as floating-rate loans or leveraged loans) invest in bonds and other fixed-income securities that have variable, as opposed to fixed, interest rates.
  • A basis point is one hundredth of a percent, so 100 basis points is equivalent to 1%.
  • A bond is a fixed-income instrument and investment product where individuals lend money to a government or company at a certain interest rate for an amount of time. The entity repays individuals with interest in addition to the original face value of the bond.
  • Bond maturity is the time when the bond issuer must repay the original bond value to the bond holder. The maturity date is set when the bond is issued and the bond holder can sell before this time if they want to. Bonds can be short, medium or long term, which refers to the length of maturity.
  • Cash inflow is the money going into a business which could be from sales, investments, or financing.
  • ‍A collateralized loan obligation (CLO) is a single security backed by a pool of loans, collected into a marketable instrument via process known as securitization.
  • A coupon or coupon payment is the annual interest rate paid on a bond, expressed as a percentage of the face value and paid from issue date until maturity. Coupons are usually referred to in terms of the coupon rate (the sum of coupons paid in a year divided by the face value of the bond in question).
  • FY24 refers to a fiscal year, which is a 12-month accounting period that a business uses for financial and tax reporting purposes.  
  • ‍High-yield bonds (or junk bonds) are bonds that pay higher interest rates because they have lower credit ratings than investment-grade bonds.
  • ‍Investment grade refers to the quality of a company's credit. To be considered an investment grade issue, the company must be rated at 'BBB' or higher by Standard and Poor's or Moody's.
  • A leveraged loan is a type of loan made to borrowers who already have high levels of debt and/or a low credit rating. Lenders consider leveraged loans to have an above-average risk that the borrower will be unable to pay back the loan (also known as the risk of default).
  • The term loan refers to a type of credit vehicle in which a sum of money is lent to another party in exchange for future repayment of the value or principal amount.
  • The term mergers and acquisitions (M&A) refers to the consolidation of companies or their major business assets through financial transactions between companies. A company may purchase and absorb another company outright, merge with it to create a new company, acquire some or all of its major assets, make a tender offer for its stock, or stage a hostile takeover.
  • The option-adjusted spread (OAS) is the measurement of the spread of a fixed-income security rate and the risk-free rate of return, which is then adjusted to take into account an embedded option.
  • A refinance refers to the process of revising and replacing the terms of an existing credit agreement, usually as it relates to a loan or mortgage.
  • Spread refers to the difference or gap between two prices, rates, or yields.
  • Syndicated loan is a form of loan business in which two or more lenders jointly provide loans for one or more borrowers on the same loan terms and with different duties and sign the same loan agreement.
  • Yield is the income returned on an investment, such as the interest received from holding a security.
  • Yield to worst (YTW) is a measure of the lowest possible yield that can be received on a bond with an early retirement provision.

1 JP Morgan Strategy, June 6, 2024.

2 Barclays Strategy, June 3, 2024.

3 JP Morgan Strategy, May 23, 2024.

4 JP Morgan, May 23, 2024.

5 LCD, May 24, 2024.

6 BAML, June 4, 2024.

7  Aristotle Pacific Capital analysis, June 6, 2024.

8 Citi Strategy, June 6, 2024.

Any performance data quoted represent past performance, which does not guarantee future results. Index performance is not indicative of any fund performance. Indexes are unmanaged, and it is not possible to invest directly in an index. For current standardized performance of the funds, please visit www.artistotlefunds.com.The views expressed are as of the publication date and are presented for informational purposes only. These views should not be considered as investment advice, an endorsement of any security, mutual fund, sector or index, or to predict performance of any investment or market. Any forward-looking statements are not guaranteed. All material is compiled from sources believed to be reliable, but accuracy cannot be guaranteed. The opinions expressed herein are subject to change without notice as market and other conditions warrant.

Investors should consider a fund's investment goal, risks, charges, and expenses carefully before investing. The prospectuses contain this and other information about the funds. The
prospectuses and/or summary prospectuses should be read carefully before investing.

Investing involves risk. Principal loss is possible.

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