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Asset Growth at US Loan Funds Continues Tepid as Investors Cast Wary Eye on Market

US loan fund asset growth

Asset growth at U.S. loan funds continued apathetic in October, with investor coffers increasing by just $450 million, according to Lipper and LCD.

While that’s more than in three of the past four months—there was an outlying $1.6 billion gain in July—it’s firmly in the low-growth pattern that has taken root in the market since the start of 2017’s third quarter, and is well off the monthly average of $3.4 billion during the first half of the year.

total assets US loan funds

The October activity brings assets at U.S. loan funds to $157 billion, the most since the $158 billion in September 2014. But again, the asset figure is relatively unchanged from $154 billion back in May.

Asset growth has slowed considerably from earlier in 2017 and in 2016, when retail investors were more bullish regarding additional interest rate hikes by the Fed. Floating-rate asset classes such as leveraged loans tend to fare well in a rising rate environment, so the specter of multiple rate increases, after a prolonged stretch without one, attracted billions to the market.

While the market consensus widely expects a 25 bps hike this month – bringing the rate to 1.5% – the sentiment is mixed regarding rate hikes thereafter. – Tim Cross

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Fortress Prices $586M CDO, to invest in Leveraged Loans, High Yield Bonds

GreensLedge Capital Markets LLC today priced a $586.1 million CDO for FDF Management LLC Series III, according to market sources. The manager is an affiliate of credit funds for Fortress Investment Group. This is the first such transaction this year from the manager who previously issued a similar structure last May.

The manager will retain a horizontal slice to comply with risk retention in the U.S.

Pricing details are as follows:

Fortress CDO 2017-11-29

Up to 35% of the portfolio must be invested in senior secured loans and a maximum of 65% can be invested in second-liens and/or unsecured bonds, sources said.

The transaction will close on Dec. 20 with the non-call period running until Jan. 25, 2020 and the reinvestment period ending on Jan. 25, 2023. The legal final maturity is on Jan. 25, 2036. — Andrew Park

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US Leveraged Loans Returning 0.04% in November; YTD: 3.63%

Loans gained 0.01% today after gaining 0.02% yesterday, according to the S&P/LSTA Leveraged Loan Index.

The S&P/LSTA US Leveraged Loan 100, which tracks the 100 largest loans in the broader Index, lost 0.01% today.

Loan returns are 0.04% in the month to date and 3.63% in the YTD.

Daily loan index 2017-11-28

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GNC Returns to Leveraged Loan Market with High-Yielding Credits

GNC logoStruggling retailer GNC Holdings is taking another run at the U.S. leveraged loan market, and will be paying up in the process.

GNC today relaunched a transaction that includes a $300 million B-1 term loan due Jan. 31, 2020, and a $905 million B-2 term loan due Jan. 31, 2021, sources say. The new debt will refinance the company’s existing TLB and revolver, coming due next year.

Price talk on the B-1 is 850–900 bps over LIBOR, while price talk on the B-2 is 950–1,000 bps over LIBOR. When taking into account that the loans are being offered at 96 cents on the dollar, the yield to maturity on the credits works out to roughly 12.9% and 13.5%, respectively.

GNC earlier this month launched a $705 million, five-year B term loan that was talked at L+700. That credit was not completed. Proceeds from that term loan were set to be used alongside an adjoining bond offering to refinance the company’s B term loan and revolver.

The debt to be refinanced, put in place in 2013, is priced at 250 bps over LIBOR. GNC had a BB+ corporate credit rating at the time of the original deal. The company currently has a B corporate credit rating.

In May, GNC Holdings discontinued a planned amend-to-extend loan.

GNC shares have been buffeted of late, declining some 50% YTD and by roughly 17% since the company’s last earnings report, a month ago, according to Nasdaq.com.

Pittsburgh-based GNC (NYSE: GNC) is a global specialty health, wellness, and performance retailer. — Richard Kellerhals

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Investors Withdraw $536M from US Leveraged Loan Funds

US loan fund flows
U.S. loan funds recorded an outflow of $536 million for the week ended Nov. 22, according to Lipper weekly reporters only. This exit comes on the heels of the previous week’s $530 million outflow, and is the sixth consecutive week of outflows, for a total exit of $2.8 billion over that period.

Note for the week ended Nov. 8, U.S. loan funds recorded an exit of roughly $1.5 billion, although more than $1 billion of that total outflow was the result of a reclassification at a single institutional investor, whereby the investor’s open-end fund was liquidated and merged into its closed-end fund.

Mutual funds this week made up $475 million of the total outflow this week, as $61 million exited ETFs.

The four-week trailing average declined to negative $668 million, from negative $555 million last week.

Year-to-date inflows from leveraged loan funds now total $11.1 billion, based on inflows of roughly $6.6 billion to mutual funds and inflows of $4.5 billion to ETFs, according to Lipper.

The change due to market conditions this past week was positive $140 million. Total assets were $95.7 billion at the end of the observation period. ETFs represent about 20% of the total, at $19.1 billion. — James Passeri

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2017 U.S. Leveraged Loan Issuance Hits Record High

It’s official.

With six weeks left to go, 2017 already is the busiest year ever for the U.S. institutional loan market, with $468 billion of issuance so far, according to LCD. This bests the previous full-year record of $456 billion in 2013, and technically puts 2017 on pace to top $500 billion in institutional activity.

New-issue loan volume

And no, these numbers do not include the flood of repricings, completed via amendment, that has characterized the loan market for much of the year. The YTD all-in repricing figure now totals a staggering $506 billion, by the way.

Taking into account the pro rata market, U.S. leveraged loan issuance in 2017 is $592 billion, just short of the $607 billion in all of 2013.

Looking more broadly at the leveraged finance space, high-yield issuance is $245 billion so far this year, bringing 2017 leveraged finance volume—institutional loans and bonds—to $713 billion, according to LCD. That’s good for second place all time, behind the $778 billion in 2013.

Speaking of high-yield, while activity in that segment so far this year marks a rebound from the $229 billion in 2016 (which was the least since 2011), issuers have clearly preferred the loan market, even when considering only covenant-lite loans. Indeed, in 2017, cov-lite issuance has exceeded high-yield activity by 41%, illustrating just how pervasive cov-lite has become.

The trend is even more pronounced when looking at private equity-backed borrowers, which raised four times more via cov-lite loans this year than in the high-yield bond market.

For the record, by the end of October, the share of cov-lite outstandings, per the S&P/LSTA Loan Index, had reached 74%, the highest ever. — Staff reports

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Investors Withdraw $530M from US Leveraged Loan Funds

U.S. loan funds recorded an outflow of $530 million for the week ended Nov. 15, according to Lipper weekly reporters only.

Last week, U.S. loan funds recorded an exit of roughly $1.5 billion, although more than $1 billion of that total outflow was the result of a reclassification at a single institutional investor, whereby the investor’s open-end fund was liquidated and merged into its closed-end fund. The transaction was reported as a net outflow as money exited the open-end universe.

With the exception of last week’s reclassification, the $530 million outflow this week marks the largest exit from the asset class since the week ended Feb. 24, 2016, when the total outflow was $618 million.

ETFs made up $290 million of the total outflow this week, while $240 million exited mutual funds.

The four-week trailing average dipped to negative $555 million, from negative $445 million last week.

Year-to-date inflows from leveraged loan funds now total $11.7 billion, based on inflows of roughly $7.1 billion to mutual funds and inflows of $4.6 billion to ETFs, according to Lipper.

The change due to market conditions this past week was negative $306 million. Total assets were $96.1 billion at the end of the observation period. ETFs represent about 20% of the total, at $19.1 billion. — James Passeri

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US High Yield Funds See Massive $4.4 Billion Cash Withdrawal

US high yield fund flows

U.S. high-yield funds recorded an outflow of $4.4 billion for the week ended Nov. 15, according to weekly reporters to Lipper only.

Mutual funds made up the bulk of this week’s outflow, at $2.6 billion, while $1.8 billion exited ETFs.

The year-to-date total outflow is now roughly $13 billion, with a $14.7 billion outflow from mutual funds outweighing a roughly $1.7 billion inflow to ETFs.

The four-week trailing average is in the red for the third straight week, widening to negative $1.5 billion from negative $536 million last week.

The change due to market conditions this past week was a decrease of $1.9 billion. Total assets at the end of the observation period were $206.6 billion. ETFs account for about 24% of the total, at roughly $50 billion. — James Passeri

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Free from S&P – Morning Briefing with the Economists: An Asia & Europe Perspective

S&P is presenting a free briefing on economic perspectives from Asia & Europe. Details and a link to register:

5 December 2017
8:30 AM – 10:45 AM
GMT Time

Andaz London Liverpool Street
40 Liverpool Street
London EC2M 7QN
United Kingdom

Agenda

  • 8:30AM – 9:00AM
    Registration and Breakfast
  • 9:00AM – 9:15AM
    Opening Remarks
  • 9:15AM – 10:00AM
    The Party Congress is Over, So What Next For China?
    Paul Gruenwald, Asia Pacific Chief Economist, S&P Global Ratings
  • 10:00AM – 10:45AM
    A Comparative View Of The Economic Outlook For Asia and Europe
    Moderator, tbc
    Paul Sheard, S&P Global Chief Economist, Executive Vice President
    Jean-Michel Six, S&P Global EMEA Chief Economist
  • 10:45AM – 11:00AM
    Networking and Close

Register for this Free event online

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Time HY Bonds Pop as Meredith Bid Said to Net Koch Brothers’ Backing

Bonds backing Time Inc. were among the top performers in the high-yield secondary this morning after news reports said billionaire industrialists Charles and David Koch have “tentatively agreed” to back Meredith Corp.’s renewed bid for the issuer with an equity injection of more than $500 million.

Time 7.5% notes due 2025 rose 5.625 points, to 106.25, according to MarketAxess. The notes traded as low as 99.375 in early November. Meanwhile, shares of Time (NYSE: TIME) rallied roughly 25%, to $15.80.

Sources estimate that the $500 million equity injection should provide the issuer, if a deal is completed, with a more stable leverage profile of roughly 3x, which is still on the high end of forecasts. Sources added that Time’s October refinancing transactions would have been unlikely to occur if active merger discussions were taking place at that time.

Meredith Corp., alongside suitors including Pamplona Capital Management, had reportedly been in talks earlier this year to acquire the New York media company, but Time’s board rebuffed offers in favor of its own strategic growth initiatives.

Time CEO Richard Battista, on a May earnings call with analysts, said that issuer had “thoroughly reviewed the expressions of interest,” adding the board “has determined that the best foot forward at this company was to continue with our own plan.”

Some investors expressed frustration over the board’s refusal to accept reports of Meredith’s premium valuation of the company, including activist Leon Cooperman of hedge fund Omega Partners.

“We read about Meredith’s interest in the company, that there were a number of interested parties, and here we have now a $13, $14 stock when somebody was willing to pay $18 for the company and we have a failed process,” Cooperman said on the company’s May earnings call with analysts. “And you don’t really talk about what the strategic plan really is. So I would encourage you to get quantitative, not qualitative,” he added.

Time Inc. last tapped the debt markets in early October, placing a $300 million issue of 7.5% notes due 2025 on Oct. 4, with proceeds earmarked to repay roughly $200 million of the issuer’s B term loan and to reduce by roughly $100 million by the end of 2017, in one or more transactions, the size of its term loan or outstanding notes.

Changes to the transaction were made on the covenants front, including a reduction to the credit facilities basket to $1.5 billion, from $2.4 billion. Also, the consolidated-net-leverage ratio for the debt-incurrence test (and also the governor for accessing the RP builder basket) was reduced to 3.5x, from 4.5x.

The company also on Oct. 6 placed a $464 million covenant-lite TLB (L+350, 1% LIBOR floor) to extend the maturity of its TLB to October 2024, from April 2021.

Corporate and bond ratings are B/B1 and BB–/B2, with a 4 recovery rating on the unsecured bonds by S&P Global Ratings. The covenant-lite term loan is rated BB–/Ba2, with a 1 recovery rating by S&P. — Staff reports

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