The LMA Loan Pricing Calculator calculates simple loan prices and/or yield to maturity by discounting interest and principal cash flows using an assumed re-investment rate, recognising any margin adjustments and repayment profile. The calculator is the first of its type to take into account the various nuances and unique features of loans, and will help the development of this fast growing market.
The calculator has been developed jointly by the Loan Market Association and CreditTrade and is available on their respective websites (www.lma.eu.com and www.credittrade.com) to all members of the LMA and all users of CreditTrade.
Commenting on the launch, David Fewtrell, Co-Chairman of the LMA Valuation and Trading Practices Committee and Director and Head of Secondary Loan Trading at HSBC Investment Bank plc, said:
“With the growth in loan trading over the past few years and the wider recognition of syndicated loans as an asset class in their own right, we have for a long time perceived a need on the part of the investor community for a tool to undertake yield and relative value analysis.
The LMA Loan Pricing Calculator enables investors to price loans in the secondary market accurately, supplementing the pricing data provided by the LMA’s weekly loan pricing survey, whilst assisting banks and other market participants in their loan portfolio management activities.
The calculator is also intended to allow loans to be more accurately compared to other products such as FRNs, asset swaps and credit default swaps, by enabling yield and relative returns to be assessed on a discounted cash flow or net present value basis.”
Bobby Console-Verma, CreditTrade’s head of syndicated loan sales, added:
"CreditTrade is delighted to partner with the LMA in this important endeavour to produce
the pricing tool. We expect it to be the market standard in the secondary loan industry."
The launch of the calculator is a further initiative by the LMA and leading participants to encourage depth, transparency and efficiency in the secondary loan marketplace. It follows the cooperation agreement signed last October with CreditTrade and other Internet loan sites to give participants electronic access to the LMA’s secondary loan documentation.