Leveraged loans, high yield bonds post strong Feb. returns, tho no match for equities

loan returns vs other asset classes

Given the combination of rising demand for risk assets and rising rates in February, leveraged loan returns trailed those of equities – which jumped to a three-year high – and high-yield bonds, while beating investment-grade corporate bonds and 10-year Treasuries.

Since year-end, however, rates have been relatively stable. As a result, leveraged loan returns are running behind each of the other four asset classes LCD tracks here monthly. – Steve Miller

Follow Steve for news and insight on the global leveraged loan market.


Oil plunge taking no prisoners, though leveraged loans outperforming high yield (and the S&P)

Falling oil prices have taken a toll on price of energy-related stocks and credit instruments.

In the secondary loan market, credits such as Samson InvestmentFTS InternationalVantage DrillingFieldwood EnergyOcean Rig, and Paragon Offshore have taken a beating, with losses accelerating appreciably this week in the wake of the “Black Friday” plunge in oil prices.

That said, the sector’s damage to the broader market has been limited when compared to high-yield and equities. The reason is that oil and gas-related issuers make up 4.5% of the S&P/LSTA Index, excluding utilities. That compares to 16% for the Bank of America Merrill Lynch High Yield Index and 8.5% for the S&P 500, according to S&PDJ Index analyst Howard Silverblatt.

For this reason, energy-related issuers’ drag on loan returns was far lighter than for high-yield and equities since Nov. 1, as these tables show:

returns by asset class

returns, november

Within the oil and gas segment, loan prices have fallen less precipitously than high-yield and stock prices. That is understandable, of course, given that loans are higher in the capital structure.

oil and gas loan prices

Despite this relatively better performance, loan managers are concerned that oil-and-gas could present an unexpected credit risk to a market where default rates (excluding Energy Future Holdingsare running below trend ($$). For reference, about 35% of oil and gas Index loans are covenant-lite.

Since Oct. 31, the share of oil and gas Index loans trading below 90 has jumped to 39%, from just under 1%. For the moment, however, just 0.95% of energy loans are trading at 80 or less – the sort of distressed level that suggests the market is worried about immediate default risk.

oil gas trading levels


largest oil gas loan issuers


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Leveraged loans out-perform – sort of – high yield bonds, other fixed-income in grim September

returns by asset class

After gaining 0.15% in August, the S&P/LSTA Leveraged Loan Index fell 0.60% in September, its worst monthly performance since June 2013. September’s setback dropped the year-to-date return for the S&P/LSTA Index to 2.11%, from 2.73% at the end of August.

Loans were hardly the only asset class to feel the pain in September. Risk assets broadly were dented by geopolitical concerns. As well, expectations for rising rates pushed the 10-year Treasury yield up 17 bps, to 2.52% on Sept. 30, from 2.35% at the end of August, according to the Department of the Treasury. As a result, loans outperformed equities as well as the three fixed-income categories we track here monthly.

This analysis is taken from S&P Capital IQ/LCD’s 3rd-quarter data wrap-up, available to LCD News subscribers here. Also detailed in that story:

  • Monthly loan returns, per the S&P/LSTA Index
  • Annual returns, per the Index
  • Loan returns by rating
  • Loan outstandings
  • CLO issuance
  • Leveraged loan trading prices
  • Loan M&A forward calendar

Energy Future Holdings’ TCEH debt weakens in active trading

Debt backing bankrupt Energy Future Holdings’ subsidiary Texas Competitive Electric Holdings 

Over in the loan market, the EFH pre-petition term debt, which sits at TCEH, slid to a 78.5/79 context, from levels bracketing 80 yesterday, sources said. Moreover, that’s down from an 84 context two weeks ago amid hopes for improved recoveries as investors learned of an intercompany loan of $774 million by the unit to the parent company

Press reports circulated with news that TCEH first-lien lenders plan to withdraw support for the EFH restructuring plan. The lenders plan to terminate their support because of higher valuation at the Energy Future Intermediate Holdings entity, and disclosure of the intercompany loan provided further pause, according to a Debtwire report, citing unnamed sources. – Staff reports


Europe: Managers seek debut credits for portfolio diversity

Approaching the halfway point of the year, vigorous investor demand continues to offer excellent conditions for borrowers in the European loan market – but companies still seem reluctant to take full advantage, to the frustration of managers who are seeking diversity.

To date this year, LCD counts 11 buyout financings in the loan market derived from corporate divestitures, making up a 35.5% share of buyout deal flow. At this level, corporate buyouts are relatively active compared with previous full years, but secondary/tertiary buyouts continue to make up the bulk of the buyout market, providing just over half the year’s deal count.

LCD subscribers can click here for full story — analysis including charts:

  • Debut loan issuance
  • Senior & mezzanine forward volume
  • Debut high-yield issuance (deal count)
  • Volume of HY bond issuance for institutional loan takeout (rolling 3M total)

– Ruth McGavin


Bankruptcy: EFIH 2nd-lien noteholders file suit seeking make-whole claim payment

The indenture trustee for the two issues of second-lien notes of Energy Future Holdings’ unit, Energy Future Intermediate Holdings

Litigation over the make-whole claim on the second-lien debt was expected in the case, whether via an adversary action or a motion before the bankruptcy court. A similar issue is also at play in the case in connection with the company’s proposed repayment of $5.4 billion of first-lien debt at EFIH.

The second-lien debt is comprised of about $1.75 billion of 11.75% second-lien notes due 2022 and about $406.4 million of 11% second-lien notes due 2021. The June 16 lawsuit filed by the notes’ indenture trustee, Computershare Trust Co., argues that under the indentures make-whole payments are due if the notes are repaid before March 1, 2017 (for the 11.75% notes) or May 15, 2016 (for the 11% notes).

According to the lawsuit, the company contends that the make-whole payments have not been triggered because the company is not opting to repay the notes early, but rather that the company’s bankruptcy filing on April 29 automatically accelerated the principal to become immediately due and payable.

In response to that argument, however, Computershare argued that bankruptcy law does not require a debtor to repay secured debt upon a bankruptcy filing, and that Computershare, as trustee, has not taken any action to compel repayment of the second-lien notes. Computershare also argued that, even if the bankruptcy filing accelerated payment of the notes, the make-whole payment would still be due under the clear language of the indenture.

As reported, under the company’s proposed reorganization scheme, the second-lien debt is to be paid in full, including accrued and unpaid interest (it’s worth noting that the Computershare adversary action also argues that a higher, default interest rate applies), but excluding the make-whole payment, through the roll-up of a proposed $1.9 billion second-lien DIP backed by certain unsecured creditors of EFIH and Energy Future Holdings.

The bankruptcy court has scheduled a June 30 hearing on approval of the DIP, which is being contested by a group of second-lien lenders that have proposed their own rival second-lien DIP for the company. Which group ultimately wins out as DIP lender is significant because under the company’s restructuring proposal, the facility is slated to be exchanged for equity in the reorganized company.

Meanwhile, as reported, on May 9 the company launched a tender offer to repurchase the second-lien notes incorporating a proposed settlement of the make-whole claim that would pay holders of the 11.75% notes $1,116.22 for each $1,000 principal amount of notes, and holders of the 11% issue $1,073.22 for each $1,000 principal amount of notes, plus an additional $50 per $1,000 principal amount of notes for early participation in the tender offer – amounts which the company said are 50% of the potential second-lien make-whole claims (see “Energy Future launches tender offer for EFIH second-lien debt,” LCD, May 12, 2014).

Holders of 35% of the notes by face value had already agreed to the settlement in a pre-petition restructuring support agreement with the company. Meanwhile, the company said in a filing with the Securities and Exchange Commission on Friday that holders of 43%, or $922.4 million of the total of about $2.2 billion of second-lien debt, have agreed to “early participation” in the settlement, the deadline for which was June 11 (see “EFIH 2nd-lien make-whole settlement nabs 43% early participation,” LCD, June 16, 2014).

The tender offer is set to expire on July 3, the company said, noting that the participation rate is therefore subject to change. A hearing on bankruptcy court approval of the settlement is scheduled for June 30.

Returning to the adversary action, the next step in the litigation process would be for the company to file a response to the adversary action with the bankruptcy court. That will eventually occur, but on a more practical level, now that the issue – which, as noted, both sides agree needs to be litigated – has been placed before the court, look for the parties to either work out a discovery and litigation schedule, as was done with respect to the first-lien debt make-whole claim (see “Parties agree to September trial on EFIH first-lien make-whole claim,” LCD, June 4, 2014), or leave it to the bankruptcy court to set a timetable for resolving the matter. – Alan Zimmerman


Europe: Markit announces iTraxx Crossover to expand to 75 names

markitlogo_opt (1)Markit has announced a number of rule changes for the iTraxx European indices, including the Crossover. The changes, which will be implemented for the September 2014 roll, include:

  • Crossover to be expanded to 75 names, from the current 60, though this depends on the level of further issuance prior to the roll.
  • Secured debt will be used for qualifying entities to be included via the Supplementary List.
  • Names that are unrated and that have only issued unrated debt will not be considered for inclusion via the Supplementary List.
  • Convertible bonds will not be considered when determining issuance size or selecting entities within a ticker when constructing the iTraxx Crossover Supplementary list.
  • PIK bonds will be disregarded during entity selection within a ticker, but still be considered when identifying tickers with the largest issuance.
  • Bonds with a maturity greater than 30 years will be excluded during the selection of names within a ticker, but still included for identifying tickers with the largest issuance.

Market sources suggest the decision to increase the number of constituents stems from a desire to capture the changing dynamics of European high-yield, which over the last 18 months has seen a greater number of sub-benchmark-size deals issued by small companies.

Analysts at UniCredit comment that the downside to the expansion is the difficulty to establish a proper single-name CDS market for the smaller names in the index. They add that this already occurred when the index was increased from 50 to 60 names. – Luke Millar



High Yield Bond Primer/Almanac updated on

LCD’s online High Yield Bond Primer has been updated with charts detailing U.S. market activity through April 2014, as well as historical numbers, and includes a new section on accrued interest.

The Primer is available to all on www.highyield, a free site powered by LCD to promote the high yield asset class. As well as the Primer, features select LCD News stories, leveraged finance job postings and HY market stats and data that are updated weekly, including issuance, yield and secondary prices.

Again, the High Yield Primer and exist to help promote the asset class, so please share them with any and all that might be interested in learning about or keeping up with the market space.

Charts/Tables in the High Yield Primer

  • Ratings breakdown: Investment grade vs. Junk
  • U.S. High Yield Bond Issuance (historical)
  • Large High Yield Offerings
  • High Yield Issuance, by Purpose (2014)
  • High Yield Issuance, backing LBOs (since 2005)
  • Bond Fund Inflows/Outflows (2014)
  • PIK-Toggle Issuance (historical)
  • HY Bond Yield to Maturity (historical)

You can also check out, of course. And if you don’t already, follow @lcdnews on Twitter for real-time market updates, charts, and curated content covering the global leveraged finance markets.


YouTube, slides: Dec. 2013 European leveraged loan market analysis

LCD’s video analysis detailing the European leveraged finance market during November is now on YouTube.

Loan issuance was €5.4 billion during the month while high yield issuance was €7.4B. Both markets remain buoyant and open. Secondary markets were up, while inflows into high yield funds are estimated to be €1B. The European loan index (ELLI) was up. Four CLOs priced in November, with seven still in the pipeline.

This month LCD looks at:

  • Leveraged loan prices
  • High yield bond prices
  • ELLI multi-currency loan returns
  • Volume: new issue loans vs HY bonds
  • ELLI default rate

The video is available here.

The URL for the video:

PDF slides of the video on Slideshare is available here.

URL for the slides:

While you’re on YouTube please subscribe to LCD’s YouTube Channel. That way you won’t miss any LCD videos. You can also subscribe by clicking on the link to the right of any LCD News email.


YouTube, slides: December 2013 US Leveraged Loan Market Analysis

LCD’s video analysis detailing the US leveraged finance market during November is now on YouTube.

New-issue leveraged loan activity pushed further into record territory during the month. The S&P/LSTA Index posted a 0.49%. The universe of S&P/LSTA Index loans grew by $22 billion, to a record $674 billion. Inflows accelerated. The loan default rate eased.

Looking ahead, the calendar of new M&A-driven transactions remains light.

This month LCD looks at:

  • Leveraged loan volume; M&A loan volume
  • Average Bid of S&P/LSTA Loan Index
  • S&P/LSTA Index Loans Outstanding
  • Visible Inflows
  • Average New-Issue Clearing Yield of First Lien Loans
  • Loan Default Rate
  • M&A Institutional Loan Forward Calendar

The video is available here.


PDF slides of the video on Slideshare.


While you’re on YouTube please subscribe to LCD’s YouTube Channel. That way you won’t miss any LCD videos. You can also subscribe by clicking on the link to the right of any LCD News email, or here:

If you’d like to embed an LCD video on a web page or in other digital media, it’s simple via the “embed” button on the YouTube page for the video. You can also embed the slides via Slideshare.