Why would investors consider bank loans in general and Franklin Templetons capabilities specifically?
TC: The total market size for high-yield bank loans is about $600 billion. Bank loans are rated below investment-grade corporate debt, like high-yield bonds. However, the assets differ in several significant ways. First, the interest rate on a bank loan floats; it changes every three months it’s a spread over LIBOR. In contrast, the income on a high-yield bond is usually fixed for the life of the bond. Another difference is the claim on assets; loans have senior priority within the capital structure and are secured by collateral. Bonds are unsecured and subordinated to bank loans. Finally, when investing in bank loans, we are able to use proprietary information from the issuer, such as the management’s forecasts, its financial reports, and confidential projections; bonds are restricted to public information. DA: The assets differ, also, in how their respective markets have evolved over the last few years. As a result of opportunities for leveraged buying in the asset class, we saw many
