Many investors have the perception that the below-investment-grade ratings carried by senior loan-issuing companies signify a lack of size, skilled management, or even profitability. While such companies do exist, below-investment-grade ratings are typically assigned to entities that choose to capitalize themselves with more debt relative to their investment-grade counterparts.
The reality is that senior loan issuers are generally well-functioning companies, many with whom you might be familiar.
Household Names Issue Senior Loans
Many senior loan issuers are well-known industry leaders. Household name companies have issued or do issue senior loans, which may help them lower interest costs and/or provide more flexibility in terms of refinancing versus other forms of debt.
On average, senior loan issuers have successfully met 96.8% of their scheduled interest and principal obligations. This is implied by a long-term default rate of 3.2%.1 Importantly, in the rare case of default, senior loan investors would collect ahead of high-yield bondholders and equity shareholders.
- High income potential, low volatility relative to high-yield bonds, and potential diversification benefits?
- Lower interest rate risk exposure than traditional fixed income?
- A time-tested investment team and process?
Oppenheimer Senior Floating Rate Fund has historically provided higher yields than traditional fixed income, as well as its peer group average.2 The Fund is managed by the Oppenheimer Senior Corporate Loan Team and has had the same portfolio manager at the helm since the Fund’s 1999 inception. By employing a fundamental, bottom-up approach that looks at the senior loan market on a security-by-security basis, the team and Fund have historically offered investors solid yields and performance relative to peers.2
- ^Source: JPMorgan Research, 12/31/16. Long-term default rate refers to the period 1998–2015.
- a, bSource: Morningstar, Inc., 9/30/17. The Morningstar Bank Loan Funds Category Average is the average return of all funds within the investment category as defined by Morningstar. Returns include the reinvestment of distributions but do not consider sales charges. Performance is shown for illustrative purposes only and does not predict or depict the performance of the Fund.
The performance data quoted represents past performance, which does not guarantee future results. The investment return and principal value of an investment in the Fund will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than the original cost. Current performance and expense ratios may be lower or higher than the performance data quoted. For performance data current to the most recent month-end, visit oppenheimerfunds.com or call 1 800 CALL OPP (225 5677). Fund returns include changes in share price, reinvested distributions, and a 3.50% maximum applicable sales charge except where “without sales charge” is indicated. Class Y shares are not subject to sales charge. Returns do not consider capital gains or income taxes on an individual’s investment.
These views represent the opinions of the portfolio managers at OppenheimerFunds, Inc. and are not intended as investment advice or to predict or depict the performance of any investment. These views are as of the publication date, and are subject to change based on subsequent developments.