As institutional investors continue their search for yield, middle market loans - those to smaller borrowers - are increasingly in focus. LCD's Kelly Thompson looks at recoveries on market middle loans, vs. their large-cap cousins, and finds some surprising results.

1. Leveraged Loans
Middle Market Recoveries Best Large-Cap Deals

2. 60
68
75
83
90
81%
74%
Large Cap Middle Market
Recoveries on Defaulted Loans, 2010-13
Source: S&P Capital IQ/CreditPro
loans ≥ $200M loans < $200M

3. 0%
20%
40%
60%
80%
6/13 7/13 8/13 9/13 10/13 11/13 12/13 1/14 2/14 3/14 4/14 5/14
Large Cap Middle Market
Covenant-lite, as a share of loan market
Source: S&P Capital IQ/LCD This chart: middle market = $350M loan and less

4. 0.0%
3.5%
7.0%
10.5%
14.0%
1/10 5/10 9/10 1/11 5/11 9/11 1/12 5/12 9/12 1/13 5/13 9/13 1/14 5/14
Large Cap Middle Market
Leveraged Loan Default Rate 2010-2013
Energy Future Holdings (TXU)
- $19.5B
Source: S&P Capital IQ/LCD

5. 0.0%
3.5%
7.0%
10.5%
14.0%
1/03 1/04 1/05 1/06 1/07 1/08 1/09 1/10 1/11 1/12 1/13 1/14
Large Cap Middle Market
Energy Future Holdings (TXU)
- $19.5B
Source: S&P Capital IQ/LCD
Leveraged Loan Default Rate 2003-2013

6. Overall Leveraged Loan Default Rates
• 2010-2013: A period of calm re loan defaults
"
• At end of 2010, after emerging from credit crisis, overall
default rate = 4.5%
"
• Remained near/below historical lows through 2013 (1.9%)
"
• Higher defaults for middle market loans? Large cap loans
enjoyed looser structures (cov-lite), meaning avoiding default
was easier

7. © 2014 McGraw Hill Financial Inc.