medium · Debt Capital Markets bond-instruments-structures
Why is the Second-Lien Term Loan market often referred to as 'pro-cyclical'?
- It is named after the recurring 'cycle' of scheduled principal payments laid out in the deal's amortization waterfall.
- The coupon yields are directly indexed to the annual GDP growth rate of the borrower's domestic home country.
- Issuance typically surges when market liquidity is high and risk appetite is strong, and disappears during downturns.
- Second-Lien lenders are contractually obligated to expand their committed lending whenever the economy enters a recession.
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