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Commercial Loan Pricing Drops For Larger, Riskier Borrowers YOY

Over the last 12 months to June 30, 2017, commercial loans have become more expensive for smaller borrowers and less expensive for larger, riskier borrowers.

According to data collected by S&P Global Market Intelligence on non-syndicated commercial loan portfolios, loan spreads on London Interbank Offered Rate-linked commercial loans — which tend to be offered to larger borrowers — have increased slightly or remained flat for borrowers with a risk-rating between "5" and "8," but have actually decreased for borrowers rated "9" or more. In June 2017, the average spread above LIBOR for a new loan for a 5-rated borrower was 211 basis points, compared to 188 basis points a year earlier. In contrast, the average spread for a 12-rated borrower was 279 basis points in June 2017, 16 basis points lower than it was a year before.

S&P Global Market Intelligence aligns each participating bank's internal risk ranking to a 16-point risk scale with "1" being the most creditworthy and "12" being the lowest origination grade. Grades below 12 are in various states of default and delinquency. Since only 3% of loans originated in the first half of 2017 were rated between a 1 and 4, this analysis focuses only on those loans ranked between 5 and 12.

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For loans tied to the "Prime" rate — which tend to go to smaller borrowers — interest rate spreads have largely increased across the board year-over-year. This past June, the average spread on a prime-linked loan to a 5-rated borrower was 112 basis points, compared to 91 basis points in June 2016. Similarly, the average spread for a 12-rated borrower was 180 basis points in June 2017, 35 basis points higher than a year earlier.

Data is collected by S&P Global Market Intelligence from select participating bank lenders active in the commercial & industrial loan space. Coverage may change over time.

Commercial loan spreads (bps)

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