To understand the Leveraged Loan Index, or LLI, we first need to wrap our heads around leveraged loans.
Leveraged loans are loans taken out by organizations that already have a bunch of debt. They’re a bit risky as an investment option—if companies already owe a lot of money, how do we know they’ll be able to repay this current loan?—but they can potentially come with a higher rate of return than boring old normal loan-type investments, which makes them attractive to some.
The LLI tracks the performance of leveraged loans by looking at the value of the loans, any interest involved, and whether or not investors gained or lost on the deal. Different indexes look at slightly different factors and weight them slightly differently, but overall, the goal is to understand how institutional leveraged loans are behaving as a whole. The most popular LLI is—and this is a mouthful—the S&P/LSTA U.S. Leveraged Loan 100 Index, which looks at the 100 largest liquid loan issues out there in the world at a given time.