Since early March, we’ve posted regular updates on the commercial loan pricing markets, based on what we’ve seen when examining the PrecisionLender data set. We look at several popular metrics and point out areas in which there have been noteworthy changes.
Today’s update is for the first half of July. If you’d like to see our previous loan pricing market updates, you can find them here.
This piece also includes more in-depth analysis of rate floors – how often they are used (overall and by deal size) and their median rates. These charts are in response to some of the most frequent questions we received from bankers who have read our previous updates. If you have a question about our analysis, or whether we have data on a particular metric, please reach out us at firstname.lastname@example.org.
NOTE: PrecisionLender’s data reflects actual commercial opportunities priced (loans, deposits, and other fee-based business) by more than 150 banks in the United States, ranging in size from small community banks to top 10 U.S. institutions. In addition to their variance in size, these banks are also geographically diverse, with borrowers in all 50 states.
Volume Dips Slightly
Pricing volume dipped a bit in the first half of July, after a steady climb up from its lowest levels in April. We’ll continue to monitor this to see if it’s the start of a new trend line, but for now, it’s worth noting that the volume is still well above the April numbers.
Average Weekly Priced Commercial Loan Volume
LIBOR Spreads Reach YTD High
After a drop in the second half of June, LIBOR spreads rose again earlier this month, to their highest weekly averages of the year. The average spread to LIBOR since the mid-March rate drops is now about 20 bps higher than it was for the first 2.5 months of 2020.
Average Weekly Spread To 1-Month LIBOR
Prime Spreads Steady; Well Above Early 2020
While the average weekly spread to LIBOR has steadily risen since mid-March, Prime spreads have taken a different path. They jumped immediately by a little more than 20 bps and then have stayed steady, within a 6-bps range, over the next 3.5 months. Early July was more of the same.
Average Weekly Spread to Prime
Fixed and Floating Coupon Rates Move in Oppose Directions
The shift in LIBOR spreads - and lack of movement in Prime spreads – are reflected in their coupon rates, which rose 6 bps for 1-month LIBOR and fell 2 bps for Prime. The biggest shift occurred in fixed rate coupons, which fell 11 bps from June. The cause of that drop is not clear, but we’ll continue to monitor it in our next update at the end of July.
Coupon Rates by Month, YTD
These coupon rates reflect better yield protection on floating rate deals – these were up 10 bps from June. That, coupled with little movement in funding costs, led to a 12 bps rise in floating rate NIM in the first half July, to 3.17%. That’s nearly 50 bps higher than March levels.
As for fixed rate deals, their yield has dropped by 9 bps so far in July, and NIM is down 5 bps to 2.59% – still nearly 40 bps higher than March levels.
Libor Floors Frequency and Median Rates
The incidence of floors on LIBOR-based loans has continued to rise during the pandemic, nearly doubling since mid-March (from 20% up to 39% in July).
LIBOR Floor Incidence by Month, YTD
The median rate on LIBOR floors so far in July is 3.85%. That’s up after a dip in June, and 10 bps higher than April and May levels. The implied spread on LIBOR-based loans with floors is approximately 366 bps, well above the overall weighted average (266) bps for LIBOR-based loans. Bankers are protecting yield both through the implementation of the floors and the rates at which those floors are set.
LIBOR Floor Median Rates by Month, YTD
LIBOR Floor Incidence by Deal Size
We dug deeper into our June LIBOR floor data to see what happened when we looked at deal size. As the size of the deal increased, so did the likelihood of implementing a floor. Deals over $10M had floors 44% of the time, as compared to just 30% of the deals under $1M (and the overall frequency of 33% for June). When floors were set on deals under $1M, they were at a higher median rate (4.18%) vs. the overall median rate of 3.5%
LIBOR Floor Incidence and Median Rate by Deal Size
Prime Floors Frequency and Median Rates
The incidence of floors on Prime-based loans has risen roughly 50% from pre-pandemic levels, from 40% in February to nearly 60% in July.
Prime Floor Incidence by Month, YTD
The median rate on Prime floors in July is 4.25%. That’s back up to March levels. The implied spread on Prime-based loans with floors is now 100 bps, 52 bps higher than the overall weighted average of 48 bps. As with LIBOR floors, bankers are using prime floors effectively to protect yield.
Prime Floor Median Rates by Month, YTD
Prime Floor Incidence by Deal Size
We also looked at the variable of deal size for prime-based loans with floors, for the month of June. As with LIBOR-based floors, incidence was highest (71%) on the biggest loans (>$10M) – well above the overall average of 55%. Meanwhile the median rate was highest (4.28%) on the smallest loans (<$1M) – 28 bps higher than the overall average (4.0%).
Prime Floor Incidence and Media Rate by Deal Size
Our banking consultants and data scientists are combing through PrecisionLender pricing data every day. If there’s anything you’d like to know about what they’re seeing, please send along your questions to email@example.com.