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Invesco prices $618M CLO via Morgan Stanley; YTD volume: $12.45B

Morgan Stanley has priced a $618 million CLO for Invesco Senior Secured Management, according to market sources.

The transaction is structured as follows:

The non-call period is 1.5 years, and the reinvestment period is 4.1 years.

Including this transaction, CLO issuance in the year to date rises to $12.45 billion from 23 transactions, according to LCD. Fourteen CLOs have priced in February for $7.3 billion. – Sarah Husband

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Outflows to US leveraged loan funds dwindle to $25M; ETFs gain

us loan fund flows

Cash outflows from bank loan funds were just $25 million for the week ending Feb. 11, marking the lowest outflow reading since the week ending April 23, 2014, and not including two weeks of inflows within that time frame, according to Lipper.

This week’s outflow compares to outflows of $511 million and $443 million in the previous two weeks. For a third consecutive week, the redemption was offset by inflow to the exchange-traded-fund segment, at $31.4 million this week compared to just $579,000 last week.

The latest outflow represents the 31st consecutive weekly withdrawal and the 42nd outflow in 44 weeks, for a net redemption of $27 billion over that span.

The trailing four-week average declines to negative $429 million for the week, from negative $572 million last week and negative $537 million two weeks ago. The negative observation seven weeks ago, at $1.3 billion, was the deepest in roughly 3.5 years, or since the week ended Aug. 31, 2011.

The net $2.7 billion outflow for the first six weeks of the year, with 2% ETF-related, is in contrast to last year, which showed a net inflow of $4.2 billion for the same period, with 12% ETF-related. For the full-year 2014 outflows were roughly $17.3 billion, with ETFs representing about 3% of that total, or $516 million.

In today’s report the change due to market conditions was positive $306 million, or roughly 0.35% against total assets, which were $86.8 billion at the end of the observation period. The ETF segment comprises $6.8 billion of the total, or approximately 8%. – Joy Ferguson

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Leveraged loan funds see 30th straight investor cash outflow – $511M

Cash outflows from bank loan funds were fairly steady, at $511 million, for the week ending Feb. 4, versus $443 million last week and $738 million prior, according to Lipper. For a second consecutive week, however, the redemption was tempered by a small inflow to the exchange-traded-fund segment, at just under $1 million.

leveraged loan fund flowsThe latest outflow represents the 30th consecutive weekly withdrawal and the 41st outflow in 43 weeks, for a net redemption of $26.9 billion over that span.

The trailing four-week average expands modestly, to negative $572 million, for the week, from negative $537 million last week and negative $684 billion two weeks ago. The observation six weeks ago, at $1.3 billion, was the deepest in roughly 3.5 years, or since the week ended Aug. 31, 2011.

The net $2.7 billion outflow for the first five weeks of the year, with 3% ETF-related, is in contrast to last year, which showed a net inflow of $3.6 billion for the same period, with 9% ETF-related. For the full-year 2014 outflows were roughly $17.3 billion, with ETFs representing about 3% of that total, or $516 million.

In today’s report the change due to market conditions was positive $392 million, or roughly 0.5% against total assets, which were $86.6 billion at the end of the observation period. The ETF segment comprises $6.7 billion of the total, or approximately 8%.

Follow Matthew on Twitter @mfuller2009 for leveraged debt deal-flow, fund-flow, trading news, and more.

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LSTA issues CLO Refi Fact Sheet as market debates delayed-draw notes

There has been much focus on CLO refinancings recently, in particular where they concern U.S. risk retention regulation. On Friday the LSTA published a CLO Refinancing and Risk Retention Fact Sheet, which is designed to help market participants navigate the topic.

While CLOs issued before the Dec. 24, 2016 effective date for U.S. risk-retention regulation are grandfathered, many are concerned that any opting to refinance after that date will lose that grandfathered status – although there is much confusion around this point.

In its CLO Refinancing Fact Sheet, the LSTA says that while it is not clear how refinancings will be treated under the new risk-retention rules, it does not believe they should be considered a new securitisation transaction or regarded as a ‘work around’ for retention requirements under Dodd-Frank.

Meanwhile, in its January OnPoint, Dechert outlines the technical reasons why a CLO refinancing might cause the transaction to be caught by the regulation. While Dechert doesn’t believe the relevant agencies intended to subject CLO refinancings to the ‘Final Rule’, the technicalities around what constitutes a securitization transaction mean that a refi where new securities are issued could get caught up in the regulation. So absent any further clarification from the agencies, Dechert believes the market will operate as if a refi will fall within the scope of the Final Rule.

And that is what the market appears to be doing – with time and effort spent looking for ways to solve the potential refi issue. Sources suggest that while the CLO issuer and its investors may not ultimately look to utilise these ‘solutions’, they may be included in a transaction’s documentation to provide the parties involved with options.

The majority have opted to structure transactions with shorter non-call periods to allow for a refinancing to take place ahead of the effective date.

However, the number of managers using this option – this year CVC Credit Partners (Apidos XX), CVP CLO Manager (CVC Cascade CLO-3), and Prudential (Dryden 37) have structured CLOs with a shorter non-call periods, joining the 16 or so from last year – reduces the likelihood of this being a viable option for CLO managers, which would also need CLO liability spreads to tighten significantly to make the refinancing feasible.

The past few weeks have seen an increasing number of transactions price with non-call periods that fall after the effective date – Guggenheim (NZCG Funding), PineBridge (Galaxy XIX), 3i Debt Management US (Jamestown CLO VI), GSO/Blackstone Debt Management (Dorchester Park), and Apollo (ALM XII) – suggesting other options are being used.

Some managers have explored removing the refinancing option altogether in exchange for reducing the AAA coupon, and therefore improving the day-one economics for the equity.

Others still are considering the use of ‘delayed draw notes,’ whereby the notes issued in a refi are included in the original documentation. The solution is understood to have already been used in a U.S. CLO, according to Bloomberg, which reports that Apollo is among those managers that have used the strategy in its ALM XII CLO transaction, while sources say other managers are looking at its potential.

However, as is becoming the norm with more creative solutions to the issue, whether the approach will be deemed to comply with the regulation is being heavily scrutinised and debated.

While it’s not clear how the regulators are going to come down on the regular refinancings – due to the murkiness surrounding the fact no new loans are being securitized, but there are new notes being issued – the delayed-draw option may be considered a cleaner strategy.

“By taking this step and issuing securities before the risk retention effective date, managers are attempting to ensure that no new issuance of securities occurs after the effective date and thus no new securitization takes place after the rules take effect. This simply aligns the legal structure of the transaction with its intent, i.e., merely a re-pricing of selected notes of the original CLO transaction,” says the LSTA. – Sarah Husband

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US Leveraged loan funds see 29th straight week of investor withdrawals

Cash outflows from bank loan funds declined to $443.1 million for the week ending Jan. 29, according to Lipper. That’s down from $738.1 million last week and $593.7 million two weeks ago.

leveraged loan funds

Inflows from exchange-traded funds, at $11.2 million, slightly offset mutual fund withdrawals of $454.3 million. This is only the second ETF inflow in the last 16 weeks, according to Lipper, but the latest ETF outflows have been negligible. Recall that ETFs were very heavy, at 18% of the big withdrawal six weeks ago, and that was anomalous to almost every other reading during the year.

The latest outflow represents the 29th consecutive weekly withdrawal and the 40th outflow in 42 weeks, for a net redemption of $26.5 billion over that span.

The trailing four-week average moderates to negative $537 million for the week, from negative $684 million last week and negative $821 billion two weeks ago. The observation five weeks ago, at $1.3 billion, was the deepest in roughly 3.5 years, or since the week ended Aug. 31, 2011.

The net $2.1 billion outflow for the first four weeks of the year, with 3% ETF-related, is in contrast to last year, which showed a net inflow of $3.4 billion for the same period, with 10% ETF-related. For the full-year 2014, outflows were roughly $17.3 billion, with ETFs representing about 3% of that total, or $516 million.

In today’s report, the change due to market conditions was slightly negative, at $31.7 million, or -0.04% of total assets, which were $86.7 billion at the end of the observation period. The ETF segment comprises $6.7 billion of the total, or approximately 8%. – Joy Ferguson

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Leveraged loan mart softens in December as demand deficit deepens

loan supply v demand

Loan market technical conditions weakened in December as capital formation faded more quickly than supply. In all, the amount of S&P/LSTA Index loans outstanding exceeded visible demand from CLO formation and retail flows by $5.8 billion: $7.9 billion to $2.1 billion. It was the deepest demand deficit in three months, edging November’s $5.5 billion figure. – Steve Miller

This analysis is part of a longer LCD News story, available to subscribers here, also details

  • US prime fund flows
  • US CLO issuance
  • Volume of leveraged loans breaking for trading
  • Loan outstandings
  • Secondary loan prices
  • Leveraged loan returns
  • Loan yields

 

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Leveraged loan fund outflows ease to $374M; little ETF influence

US leveraged loan fund flows

Cash outflows from bank loan funds diminished significantly in the first 2015 full-week reading, at $374 million for the week ended Jan. 7, according to Lipper. That’s down from $1 billion last week, $1.3 billion two weeks ago, and a whopping $1.8 billion in the week ended Dec. 17, 2014.

Just like last week, the influence from exchange-traded funds was essentially nil, at just 1% of the redemption, or $2.3 million over the past week. Recall that ETFs were heavy, at 18% of the big withdrawal three weeks ago, and that was anomalous to most every other reading during the year.

The latest outflow represents the 26th consecutive weekly withdrawal and the 37th outflow in 39 weeks, for a net redemption of $24.6 billion over that span.

The trailing four-week average moderates to negative $1.1 billion for the week, from negative $1.3 billion last week and negative $1.2 billion two weeks ago. Last week’s observation was the deepest in roughly 3.5 years, or since the week ended Aug. 31, 2011.

The outflow kicking off the New Year is in contrast to last year, which showed a net inflow of $1 billion during the first week of the year. For the full-year 2014, outflows were roughly $17.3 billion, with ETFs representing about 3% of that total, or $516 million.

In today’s report, the change due to market conditions was negative $272 million, for a 0.3% decline against total assets, which were $88.3 billion at the end of the observation period. The ETF segment comprises $6.8 billion of the total, or approximately 8%. – Matt Fuller

Follow Matthew on Twitter @mfuller2009 for leveraged debt deal-flow, fund-flow, trading news, and more.

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US CLO Issuance Hits Record $124.1B in 2014

US CLO issuance

The U.S. CLO market printed $124.1 billion of new issues from 234 deals in 2014, according to LCD. That’s up from $83 billion in 2013 and blows through the previous high of $97 billion in 2006.

CLO issuance in December totaled $7.75 billion from 16 deals. It was the third lightest month of the year, ahead of just January ($2.55 billion) and September ($7.73 billion) At $13.78 billion, June topped the issuance charts last year, according to LCD.

Looking to this year, the general sense is that CLO issuance will continue albeit at a reduced rate. Regulatory uncertainty (risk retention, Volcker) and rising rates are likely to be key focal points for market players, who will also be watching for risk retention consolidation/strategic partnership plays. – Sarah Husband

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2014 Leveraged Loan Investor Market: CLOs dominate as retail bid, banks fade

loan investor market

Over the final three months of 2014, the investor base for leveraged loans shifted further away from loan mutual funds, which were wracked by significant outflows. The continued strength of the new-issue CLO market only partially filled the void, forcing arrangers and issuers to sweeten challenging deals to attract relative-value investors in search of wide-margin paper. – Steve Miller

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Leveraged loan fund assets hit 15-month low as outflows persist

loan fund assets under management

The assets under management of loan mutual funds fell by $1.2 billion in November, to a 15-month low of $151.0 billion, according to Lipper FMI and fund filings. After reaching an all-time high of $175.1 billion in March, loan funds have suffered eight straight months of AUM erosion, during which they have contracted by $24.1 billion, or 13.8%. – Steve Miller

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