Bank loan primer: structure, risks, and market evaluation

September 2025

Bank loans have become a crucial part of many institutional investors’ portfolios in recent decades, whether it be on a standalone basis or part of a broader credit allocation.

This paper begins by providing background information on bank loans and highlighting the key differences between bank loans and another commonly used credit strategy, high yield bonds. It then discusses three major risks commonly associated with credit strategies – interest rate risk, credit risk, and liquidity risk – with a particular focus on how these risks manifest in high yield bonds compared to bank loans. Next, it examines structural changes that have taken place in the bank loan market, including the deterioration in credit quality and the rise of private credit as an alternative. The final sections evaluate the role of bank loans in an investor’s portfolio and explore issues one may face after deciding to invest in this asset class.