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US Leveraged Loan Funds See $1.32B Outflow

U.S. loan funds reported an outflow of $1.32 billion for the week ended Nov. 28, according to Lipper weekly reporters only. This is the second consecutive week of outflows of more than $1 billion—marking the largest two-week outflow total in three years—and the third outflow in the past five weeks.

Outflows have now been logged in four of the last six weeks for a cumulative net outflow of $4.4 billion over that span. Despite this week’s result, the four-week trailing average narrowed to $721 million, from $768 million, as a large outflow rolled off.

Mutual funds were again the primary driver of the outflow at $992.2 million, while another $328.3 million was pulled from ETFs. This is the fifth straight week that investors have moved cash out of mutual funds, for a total of $3.2 billion during that period.

With this latest outflow, the year-to-date total inflow falls to $7.3 billion.

The change due to market conditions last week was a decrease of $395.8 million, moderating from a steeper decline last week, but still the third straight week in the red. Total assets were roughly $103.8 billion at the end of the observation period and ETFs represent about 11% of that, at roughly $11.7 billion. — Jon Hemingway

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US High Yield Bond Funds Hit With $1.2B Cash Withdrawal

high yield bond flows

U.S. high-yield funds reported an outflow of $1.2 billion for the week ended Nov. 28, according to weekly reporters to Lipper only. This marks the second consecutive negative reading, albeit milder than last week’s $2.2 billion exit.

The net withdrawal was largely the function of ETFs, which registered outflows totaling $719.5 million, while mutual funds recorded a $480.5 million outflow. The four-week trailing average was little changed at $465.9 million, from $426.7 million in the prior week.

This week’s result brings the year-to-date total outflow to roughly $27.7 billion. That is well ahead of 2017’s full-year outflow of roughly $14.9 billion, which stands as the largest exit on an annual basis to date.

The change due to market conditions was an increase of $124.1 million, a reprieve from large declines in the two prior weeks. Total assets at the end of the observation period were roughly $192.3 billion. ETFs account for roughly 21% of the total, at $41.2 billion. — Jon Hemingway

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HPS Prices $405M Strata CLO that will Feature CCC+Debt (and Below)

Citi yesterday priced the $405.3 million Strata CLO I from HPS Investment Partners LLC, according to market sources.

Up to 50% of the portfolio can be invested in assets rated CCC+/Caa1 and below, according to sources. This is the first such transaction from the manager, who has also issued two new issues this year out of its HPS Loan Management platform, and is structurally similar to those issued by Ellington Management.

Pricing details are as follows:

Strata CLO 2018-11-27

The transaction will close on Dec. 20 with the non-call period running until January 2021 and the reinvestment period ending in January 2023. The legal final maturity is in January 2031.

Year-to-date new issuance is now $121.3 billion from 226 CLOs, according to LCD data. November totals are now $11.26 billion from 22 new issues. — Andrew Park

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Guidelines? Leverage on European Loans Creeps Higher, Just Like in US

europe loan leverage

Leverage on European loans continues to tick higher, rising to 5.4x as of mid-November, the highest since the 6x in 2007, before the onset of the financial crisis, according to LCD.

And at 4.8x, leverage through the first-lien debt of a loan issuer’s capital structure is the highest it has ever been, while the surge in second-lien loan issuance this year adds another 0.35x of leverage, double that of last year.

This picture is broadly similar to that seen in the U.S., save for one key difference: There hasn’t been a mellowing in attitude towards the European Central Bank’s guidelines regarding leverage, as these were already deemed toothless by the European market. The knock-on effect from the less-stringent approach to the U.S. guidelines is likely to have had more of an impact, market sources say, though European bankers are far keener to say they remain conservative, if only due to self-regulation.

“The ECB is another item to discuss in [credit] committee,” explains a banker. “But if a credit is going to be declined, it’s usually way before we get to the ECB questions. We don’t need the ECB to tell us to consider cash flow valuations — that is just how leverage finance works. I’m not sure that our acceptance/decline rate has changed since the guidance.”

“We will always be careful as it’s our business,” notes a head of origination. “It’s part of our thought process but I think at the moment, market conditions will impact underwriting more. That said, there are some quite aggressive pitches out there, and it is the U.S. banks leading the pack.” – Luke Millar

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November Swoon: US Leveraged Loans Losing 0.52% MTD

Daily loan index 2018-11-26

Loans lost 0.03% yesterday after finishing unchanged on Friday, 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 0.05% today.

Loan returns are –0.52% in the month to date and 3.46% in the YTD.

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US Leveraged Loan Funds See Hefty $1.7B Cash Outflow

U.S. loan funds reported an outflow of $1.74 billion for the week ended Nov. 21, according to Lipper weekly reporters only. This is the second major outflow of the past four weeks, and just the eighth negative reading of 2018.

US loan funds

Last week’s outflow was the heaviest since the week ended Dec. 16, 2015 ($2.04 billion) and comes just three weeks after a $1.51 billion exodus over the last week of October (this excludes a nominal $1.3 billion mutual-fund outflow for the week ended Nov. 8, which came as the result of a reclassification at a single institutional investor).

With that, the four-week trailing average slumps to $767.8 million, its lowest level in nearly three years.

As with the other recent outflow, mutual funds led the way with $1.07 billion pulled out, while the total for ETFs was roughly $673 million. For ETFs that is the largest exit on record behind the $551.5 million loss for the week ended Oct. 31. Of note, ETF flows were positive in the weeks between, whereas mutual fund flows were negative for the fourth consecutive week.

While last week’s outflow puts a dent in the year-to-date total inflow, it remains a substantial $8.6 billion.

The change due to market conditions last week was a decrease of $774.3 million, the steepest decline since Dec. 16, 2015. Total assets were roughly $105.5 billion at the end of the observation period and ETFs represent about 11% of that, at roughly $12.1 billion. — Jon Hemingway

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Investors Withdraw $2.2B from US High Yield Bond Funds, ETFs

U.S. high-yield funds reported an outflow of $2.19 billion for the week ended Nov. 21, according to weekly reporters to Lipper only. This result reverses positive readings in the prior two weeks, and brings the year-to-date total outflow to roughly $26.5 billion.

us high yield flowsThe year-to-date total exit continues to mark an unprecedented outflow from high-yield funds, outpacing last year’s total outflow of roughly $14.9 billion, which stands as the largest exit on an annual basis to date.

Mutual funds led the way, posting their largest outflow since February at $1.51 billion. ETFs saw another $682.4 million pulled by investors during the observation period. The four-week trailing average narrowed marginally to negative $427 million, from negative $470 million in the prior week.

The change due to market conditions was a decrease of $1.49 billion, according to Lipper. Total assets at the end of the observation period were roughly $193.4 billion. ETFs account for roughly 22% of the total, at $41.8 billion. — Jon Hemingway

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Asset Growth at US Leveraged Loan Funds Stalls Amid Market Jitters

US leveraged loan fund AUM

The 2018 surge in asset growth at U.S. loan funds ground to a halt in October, with AUM increasing by a thin $360 million, down from $2.86 billion in September and from the roughly $3 billion average during the first nine months of the year, according to LCD and Lipper.

The October activity leaves loan fund AUM at $184.1 billion.

That’s the tenth straight month in which a record was set for the asset class, but is an obvious downshift in the face of a now-volatile equities market and relative blizzard of mainstream financial press headlines—accompanied by stories with varying levels of sophistication—urging caution where leveraged loans are concerned. – Staff reports

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Citi Prices $1B Middle Market Antares CLO 2018-3; AAAs at 145 bps

Citi today priced a $1.01 billion middle market CLO for Antares Capital Advisors LLC, according to market sources.

Pricing:

The transaction will close on Dec. 20 with the non-call period running until January 2021 and the reinvestment period ending in January 2023. The legal final maturity is in January 2031.

Year-to-date new issuance in the U.S. is now $120.03 billion from 223 CLOs, according to LCD data. This is the nineteenth new issue in November for a total of $10 billion. — Andrew Park

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With David’s Bridal Filing, US Leveraged Loan Default Rate Rises stands at 1.61%

The default rate of the S&P/LSTA Leveraged Loan Index now stands at 1.61% by principal amount after David’s Bridal filed for Chapter 11 in bankruptcy court in Delaware.

With Pacific DrillingExGen Texas PowerCumulus Media, and Walter Investment Management all rolling off the 12-month calculation in November, the rate dipped to 1.44% at the beginning of this month, having closed out October at 1.92%.

david's bridalBy issuer count, the rate is now 1.56%, down from 1.79% at the end of October.

It its Disclosure Statement filed this morning, the company cited “challenging bridal retail market conditions,” including increasing competition at the lower price points from online retailers, and its substantial debt burden as reasons behind its decision to seek relief in bankruptcy court.

The filing, which was expected, came after the company announced that a restructuring support agreement had been reached with 85% of its term loan lenders and 97% of its senior noteholders, as well as its principal equity holders, on a deal to reduce the company’s debt by more than $400 million and hand ownership to senior lenders.

Pre-petition term loan lenders, which are expected to recover approximately 70.8%, would get 76.25% of the reorganized equity, while those who participate in the $60 million new-money DIP financing would get an additional 15% of the new equity, court filings show. Holders of its unsecured notes, which have an estimated recovery of 4.4%, would receive around 8.75% of the reorganized equity, in addition to warrants.

The issuer’s originally $520 million covenant-lite TLB was placed in October 2012 to back Clayton, Dubilier & Rice’s acquisition of the retailer from Leonard Green & Partners, which retained a minority stake in the business.

The company said it has sufficient liquidity to meet its business obligations, noting that it has obtained commitments for $60 million in new DIP financing from its current term loan lenders and a recommitment of its existing $125 million ABL revolving credit facility.

A confirmation hearing is set for Jan. 7 ahead of expected emergence from bankruptcy in early January. — Rachelle Kakouris

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