S&P and LoanX launch Standard & Poor's Loan Evaluations Service

By Sara Rosenberg

New York, Oct. 21 - Standard & Poor's and LoanX launched the Loan Evaluations Service, which will provide pricing on all outstanding syndicated loans, including those without market following or a dealer mark.

There are basically two approachs that will be used in order to price syndicated loans that have previously not been covered, according to Mark Abramowitz, assistant manager in the securities evaluations group at S&P and leader of the syndicated loan evaluations group.

The first method is through comparison to more liquid loans. For example, if a loan is typically not followed but the company is doing okay financially, the service will compare that loan to another loan, which has more market information available on it and has similar factors, Abramowitz explained to Prospect News.

The second method will take a non-market approach to come up with a fair market value for the loan. This approach will be used on loans that cannot be compared to a second loan and on distressed loans, Abramowitz said. Under this method, various factors including cash flows, asset recovery and asset sales will be evaluated in order to establish a fair market price.

Although unable to give some specific examples in which the approaches were used, Abramowitz said a name like WorldCom would be handled using the non-market approach to find a fair value.

Prices can be used by mutual funds to evaluate prices for mark-to-market purposes in determining daily net asset value and investors can use the new service as a risk management tool.

Evaluation of loans incorporates data from various sources including the PMD database, LoanX's dealer marks and posted trades, new issue trends and activity, index performance, rating reports and direct feedback from market participants.

"In developing the Loan Evaluations Service, Standard & Poor's has incorporated the most reliable and industry-respected sources for descriptive, market and credit information to provide a previously unavailable price perspective on syndicated loans," said Frank Ciccotto, managing director Evaluation/Information Services, in a news release. "A data management system was created to help manage all of the information obtained, and to maintain accurate and timely evaluations."

The Loan Evaluations Service was established in response to inquiries by market participants, according to Abramowitz. "They saw what we could do with the municipal high yield market in particular" and people wanted S&P "to apply it to this asset class." With the recent economic swings and financial conditions affecting companies, bank loan market participants were looking for a way to get depth, coverage and accuracy on a security, he concluded.

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