What is a leveraged loan index (LLI)?
A financial leverage index (LLI) is a market-weighted index that tracks the performance of leveraged institutional loans. There are several indices for the market, but the most followed is the S & P / LSTA U.S. Leveraged Loan 100 index.
A leveraged loan is a senior secured debt security with a rating below the investment quality. Leveraged loans are issued to finance debt buyouts (LBOs), and most loans are negotiated on the secondary market. The leveraged credit index tracks loan prices.
How a leveraged loan index (ILL) works
The most popular leveraged credit index (LLI) was developed by Standard & Poor’s (S&P) and the Loan Syndications and Trading Association (LSTA). This version of the leveraged credit index is a common reference and represents the 100 largest and most liquid issues in the universe of institutional loans. A sub-index assembled by S&P and LSTA is the American leveraged credit index 100 B / BB, while S&P alone has a global financial leverage index 100 to include the main issuers in Europe. The indices are rebalanced twice a year. IHS Markit Ltd., JP Morgan Chase and Credit Suisse also maintain exclusive leveraged credit indices.
An LLI serves as a benchmark for measuring the performance of fund managers dedicated to leveraged investment strategies and as a basis for passive investment vehicles such as exchange-traded funds (ETFs). For example, the Invesco senior loan portfolio (symbol: BKLN) is based on the S & P / LSTA US Leveraged Loan 100 index. According to Invesco, the asset management company that offers BKLN, the fund invests at least 80 % of its total assets in the securities that make up the leveraged credit index, which tracks the performance weighted by the component loan market according to market weights, spreads and interest payments. If less than 100% of the assets are invested in the securities comprising the index, the performance of the ETF will vary compared to the index.
A leveraged credit index (LLI) tracks the performance of institutional leveraged loans.