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US leveraged loan funds register outflow for 10th straight week

Cash outflows from bank loan funds grew to $583 million during the week ended Sept. 17, wider than respective outflows of $342 million and $435 million in the previous two weeks, according to Lipper.

The influence of bank-loan ETFs on this week’s number was just 3%, or $16 million. This compares to an outflow of $70 million from ETFs last week.

There now have been 21 weeks of outflows over the past 23 weeks, for a total outflow of $11.4 billion over that span, which follows a record-shattering 95-week inflow streak that totaled $66.7 billion.

The trailing four-week average gaps out slightly to a negative $414 million per week, from negative $404 million last week. This measure remains below the recent peak of negative $858 million from the week ended June 11.

The year-to-date fund-flow reading pushes deeper into negative territory, at $4.4 billion, based on a net withdrawal of $4.9 billion from mutual funds against a net inflow of $442 million to ETFs. In the comparable year-ago period, inflows totaled $43 billion, with 11% tied to ETFs.

The change due to market conditions was a negative $117 million, versus total assets of $103.0 billion at the end of the observation period. The ETF segment comprises $8 billion of the total, or approximately 8%. – Joy Ferguson

 

Loan_Fund_Flow_9.17_750px

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Despite CLO boom, structured finance share of leverage loan mart eases

outstandings CLO vs loanIn a year when CLO issuance is booming and retail flows are negative, it’s surprising to note that the share of outstanding institutional loans held by structured-finance vehicles actually has declined, easing to 43.4% (as of Sept. 11), from 44.8% at the end of 2013. By dollar amount, that’s $343.1 billion (according to Wells Fargo CDO analyst David Preston) of the $790.1 billion in the S&P/LSTA Index.

This analysis is part of a longer LCD News story that also details CLO issuance, as a share of LSTA Index leveraged outstandings, structured finance outstandings – CLO 1.0 vs. 2.0 – and near-term possibilities regarding CLOs that will be called.

For more on how the CLO market works check out LCD’s online Loan Market Primer. It’s free, of course.

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Retail reticence: Leveraged loan fund assets see biggest drop since 2011

loan mutual funds AUM

 

The drag on demand from the retail sector in August continues to take its toll. During the month, investors withdrew $3 billion from loan mutual funds that report weekly to Lipper, versus $1.7 billion in July. That figure suggests that when all funds publish their numbers, AUM for the category will fall by $4.3 billion in August – the largest decline since 2011 – after a drop of $2.2 billion in July. – Steve Miller

The chart is part of a loan market technicals analysis, available to LCD News subscribers, that also details

  • change in loan outstandings
  • loan index outstandings
  • high yield bond fund flows
  • leveraged loan yields
  • repricing volume
  • covenant-lite loan issuance
  • CLO issuance

Follow Steve on Twitter.

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Leveraged loans: US CLO volume tops 2013 total as pipelines remain strong

CLO chart 1 2014-09-03(2)

The U.S. CLO market kept on printing new deals through the month of August, helping push this year’s total volume past that recorded for the whole of 2013 and ever closer to the record high of $97.01 billion recorded in 2006.

At $85.42 billion from 158 deals in the year to date, according to LCD, U.S. CLO supply has easily surpassed the $82.61 billion notched from last year and is closing in on the $88.94 billion issued in 2007. – Sarah Husband

For more CLO news and market talk follow Sarah on Twitter: @husbandLCD

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Loan mutual fund outflows ease; ETFs show inflows

Cash outflows from bank-loan funds eased further to $298 million during the week ended Aug. 27, from $540 million in the week ended Aug. 20 and $687 million the week prior, according to Lipper. The influence of bank-loan ETFs on this week’s number was negative 17%, as Lipper recorded a $51 million inflow into ETFs. This compares to a $47 million outflow last week.

There now have been 18 weeks of outflows over the past 20 weeks, for a total outflow of $10.2 billion over that span, which follows a record-shattering 95-week inflow streak that totaled $66.7 billion.

The trailing-four-week average improves slightly to negative $755 million per week, from negative $782 million last week. This measure remains below the recent peak of negative $858 million, from the week ended June 11.

The year-to-date fund-flow reading pushes deeper into negative territory, at $3 billion, based on a net withdrawal of $3.6 million from mutual funds against a net inflow of $509 million to ETFs. In the comparable year-ago period, inflows totaled $39.7 billion, with 11% tied to ETFs.

The change due to market conditions was a positive $143 million, versus total assets of $104.4 billion at the end of the observation period. The ETF segment comprises $7.9 billion of the total, or approximately 8%. – Joy Ferguson

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Leveraged loan market observations, California edition: Demand, bubbles, record CLOs

On my annual August West Coast swing I was privileged to have many informative discussions with our friends on the buy-side — including at Los Angeles’ Chavez Ravine, while watching Clayton Kershaw lead the Dodgers to a win over the Angles. What follows is a summary of the insights I was able to glean, which I pass along with as little editorializing as possible.

The buy-side is in the drivers seat
Clearly, managers have adjusted to today’s new normal, in which they are able to control pricing discussions. The reasons are well known. To summarize: Hot money is out of the asset class, for now. Retail flows are negative. High yield accounts are selling. And institutional investors have pulled in their horns for the same reason as have retail investors – a combination of bad press, duration fatigue and the overall risk-off posture of the market.

Bubble trouble?
There’s a broad consensus that terms and conditions are stretched, and debt multiples are pushing into an uncomfortable zone. Will there be another default spike in the years to come, as a result? Of course. Credit cycles have existed since the ancient Sumer civilization supposedly invented debt 3,500 years before Christ.

Given the solid economic outlook, however, an organic catalyst seems like a remote possibility in the near term. That does not dismiss an exogenous shock that sinks the global economy into recession (there are plenty of flash points around today to make such a risk more than idle). But even in that case most issuers can eat out of their own refrigerator, at least for a time, as a result of wide coverage ratios.

Underwriting calendar/CLO warehouses
One big way managers observe that the current period is far different than 2007 is a lack of overhang. Naturally, there is a wide array of CLO warehousing, but warehouse lines are far less vulnerable — from a bank’s perspective — because of large first-loss positions required of equity investors. As well, the underwriting calendar today of roughly $40 billion in M&A loans is a fraction of the roughly $350 billion that loomed over the market – and banks’ liquidity – when the fecal matter hit the rotor device in 2007.

CLOs
A record year of $100 billion is in the book already, managers say, based on the year-to-Aug. 11  total of roughly $79 billion. The number could go a lot higher — perhaps upwards of $125 billion — given managers’ ability to source sub-par paper in the secondary, and the decent flow of new-issue on tap.

Retail flow
This will remain mostly negative until there’s some meaningful pick-up in rates. That said, 2015 could be a huge year for inflows if the Fed does, as expected, finally start raising rates.

Institutional mandates
Pension funds and other institutional investors have put the brakes on credit, and what mandates are in process are of the “go-anywhere” variety, that allows managers’ discretion to invest across products and regions.

To sum it up, I’d say for CLO managers these seem to be the best of times. They would not like to see further deterioration that would scare equity investors from the field. But the current state of play is highly conducive to ramping and printing deals (as the volume numbers attest). As for retail managers and those hunting for institutional mandates, it is not the worst of times, by a long shot. But it could be better.

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Leveraged Loans: 2014 European CLO issuance tops full-year 2013 total

EUR CLO issuance 2014-08-06

European CLO issuance in the year to date has reached €7.7 billion following the two recent pricings from ICG and Avoca Capital (subscriber links). This year’s supply has now eclipsed the €7.4 billion issued for the whole of 2013, and puts the market well on track to meet analysts’ full-year supply forecasts of €10-15 billion. – Sarah Husband

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July CLO market: $10B in U.S. issuance, and counting …

global CLO volume
Issuance in the U.S. CLO market continued apace last week, even with August right around the corner. Four new-issue deals priced, totaling some $2.21 billion, with more expected this week. With no new deals pricing in Europe, global CLO issuance year to date stands at $80.6 billion.

This chart is part of a longer LCD analytical story, available to LCD News subscribers. It includes charts detailing U.S. arbitrage CLO issuance vs. U.S. institutional loan volume, the U.S. CLO deal pipeline for what’s left of July, a European CLO deal pipeline, and European arbitrage CLO issuance vs. European institutional loan volume.

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Balancing act: Loan technicals firm in June as supply matches demand

Conditions in the loan market firmed in June as record CLO volume and slower supply growth offset rising retail outflows, balancing the market’s technical scale.

In what may be a first, net new supply of S&P/LSTA Index loans exactly matched visible inflows from CLO formation and loan mutual fund flows, at $8.7 billion each. That is a far cry from May’s $12 billion technical deficit, the most red ink the market has seen since November 2007.

As this chart shows, the big technical story of June was a sharp drop in supply growth. Though the universe of S&P/LSTA Index loans reached a record $756 billion during the month, it was the smallest dollar increase since January, and well inside the average of $15.3 billion from the prior three months.

LCD subscribers can click here to access full story, analysis, and the following charts:

  • Par amount outstanding of the S&P/LSTA Index
  • CLO issuance
  • Total net asset value of prime funds at month-end
  • Average bid of the S&P/LSTA Index
  • Average new-issue yield to maturity for leveraged loans
  • Repricing volume by month
  • Institutional M&A forward calendar


– Steve Miller

Follow Steve on Twitter for an early look at LCD analysis, plus market commentary.