- Overall sponsored finance volume is down on the same period last year, though loan supply recovered a little in February. The leveraged finance market could be set for lumpy issuance throughout the year.
- Supply has been dominated by M&A- and LBO-related issuance so far in 2019 — meaning investors have been served up some new-money paper — though recaps have also been seen recently from Ceva Sante Animale and HotelBeds.
- Trade players have been flexing their muscles too, as Berry Group outbid Apollo for RPC, and Amer Sports also went to a trade buyer.
- Leverage is creeping up on loan deals, but the buyside maintains it prefers transactions that carry higher leverage for a strong credit, to those from a weak company levered at 4.5–5x.
- Market expectations coming into the year were for TLB spreads of 425–450 bps, but instead they have fallen to a 400 bps context. This could indicate managed accounts are the dominant players, as such pricing is sub-optimal for CLO managers focused on the arbitrage.
- Indeed, CLO liability spreads are higher than at the end of last year, thereby putting the arbitrage under pressure. Note, the European CLO volume and deal count is running slightly ahead of the year-ago period.
- CLO demand for loans remains strong, with managers adding more risk to maintain the blended spread on assets. They are also getting creative with deal structures this year — for example, some transactions have not included any B rated paper in the stack.
- Downward flexes dominate the batch of loan deals to see price changes in syndication so far this year, indicating the current strength of demand and an issuers’ market. That said, the buyside is pushing back on docs and getting some movement here, perhaps emboldened by scrutiny on the asset class from central banks and the mainstream press.
The URL for the video: https://www.spratings.com/en_US/video/-/render/video-detail/capital-markets-view-march-2019
Luke Millar is European Editor at LCD. Chris Porter is Head of Loan Recovery & CLO Business Development, S&P Global.
Please feel free to contact Chris if you’d like a particular topic discussed in next month’s video.
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