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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.

 

 

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Leveraged loan funds report eighth consecutive week of outflows

Cash outflows for bank loan funds increased to $457 million in the week ended July 2, from $424 million the previous week, but were well below the $1.2 billion three weeks ago, according to Lipper.

This is the eighth consecutive outflow, for a net $4.94 billion withdrawal over that span, representing the largest multiweek depletion since a run of outflows in August 2011. Extrange-traded fund inflows of $28 million barely offset outflows from mutual funds of $485 million.

The outflow marks the eleventh weekly withdrawal in the past 12 weeks, a stretch that put an end to a 95-week inflow streak totaling $66.7 billion.The trailing four-week reading moves to negative $618 million per week, from negative $779 million last week and $792 million two weeks ago.

Year-to-date inflows now total just $1.2 billion, of which $804 million, or 70% of the sum, is ETF-related. In the comparable year-ago period, inflows were $28 billion, with 12% tied to ETFs.

The change due to market conditions was positive $323 million this week compared to total assets of $108.8 billion at the end of the observation period, with ETFs comprising $8.2 billion of the total, or approximately 8%. – Joy Ferguson

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Leveraged loan funds report eighth consecutive week of outflows

Cash outflows for bank loan funds increased to $457 million in the week ended July 2, from $424 million last week, but were well below the $1.2 billion three weeks ago, according to Lipper.

This is the eighth consecutive outflow, for a net $4.94 billion withdrawal over that span, representing the largest multiweek depletion since a run of outflows in August 2011. Extrange-traded fund inflows of $28 million barely offset outflows from mutual funds of $485 million.

The outflow marks the eleventh weekly withdrawal in the past 12 weeks, a stretch that put an end to a 95-week inflow streak totaling $66.7 billion.The trailing four-week reading moves to negative $618 million per week, from negative $779 million last week and $792 million two weeks ago.

Year-to-date inflows now total just $1.2 billion, of which $804 million, or 70% of the sum, is ETF-related. In the comparable year-ago period, inflows were $28 billion, with 12% tied to ETFs.

The change due to market conditions was positive $323 million this week compared to total assets of $108.8 billion at the end of the observation period, with ETFs comprising $8.2 billion of the total, or approximately 8%. – Joy Ferguson

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Cash withdrawals from leveraged loan funds moderate in 6th straight outflow

Cash outflows for bank loan funds moderated to $369 million in the week ended June 18, from $1.2 billion last week and $1.1 billion two weeks ago, according to Lipper. This is the sixth consecutive outflow, for a net $3.7 billion withdrawal over that span, representing the largest multi-week depletion since a run of outflows in August 2011.

The influence of exchange-traded fund outflows was minimal, at 5% of the sum, or $20 million, though that was up from 2% of the outflow last week.

The outflow marks the ninth weekly withdrawal in the past 10 weeks, a stretch that put an end to a 95-week inflow streak totaling $66.7 billion.

The trailing four-week reading contracts to negative $792 million per week, from negative $859 million last week. Last week’s observation in this statistic was the deepest since the week ended Sept. 7, 2011.

Year-to-date inflows now total just $2 billion, of which $797 million, or 39% of the sum, is ETF-related. In the comparable year-ago period, inflows were $25.7 billion, with 13% tied to ETFs.

The change due to market conditions was positive $48 million this week. That’s barely measurable against total assets, which stood at $109.3 billion at the end of the observation period, with ETFs comprising $8.2 billion of the total, or approximately 8%.

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– Matt Fuller

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

 

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Leveraged loans: 2Q US CLO issuance on track to top 2007 record

The U.S. CLO market continues to break through previous records as supply just keeps on rolling.

With two weeks left to go, managers have inked $32.7 billion of new vehicles so far in the second quarter. At this rate, the current period will surpass the second quarter of 2007, which saw $32.8 billion of CLO formation, on the all-time leaderboard, making it the largest quarter ever, according to LCD. – Sarah Husband

To read full article and analysis,which includes CLO issuance forecasts from market pros, LCD subscribers can click here.

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Fortress plans European CLO as US managers eye market

Global investment-management firm Fortress Investment Group is planning a possible move into the European CLO market, according to sources, who add that the manager has signed a European warehouse facility with Natixis.

In the U.S., Fortress has issued both middle-market and broadly syndicated loan CLOs, and at the start of April printed Fortress Credit Opportunities 2014-3 via Natixis.

The manager has a London office and has invested in the European market since 2002, building exposure to European loans via its U.S. funds.

Fortress is among a number of U.S. managers, including Onex, eyeing a European CLO transaction, with arrangers across the market saying they are speaking with U.S. CLO managers about European opportunities. But if European investors welcome the opportunity to invest in a more diverse manager base, additional demand for European loans threatens to further intensify the current technical imbalance.

It’s not the first time U.S. managers have assessed the European opportunity, and the desire among fund managers in Europe and the U.S. to create truly global investment platforms will ensure managers in each region will assess the pros and cons of making a move. But as LCD reported in April (see “In pursuit of the European opportunity – or is it?”), while there are many reasons to view Europe as an attractive investment play, there are also still reason to be cautious. – Sarah Husband

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Leveraged loan fund assets decline for second consecutive month in May

In May, the assets under management of loan mutual funds contracted by $1.31 billion, to a four-month low of $172.6 billion, according to data from Lipper FMI and fund filings. It was the second straight month of red ink for the category, following $1.26 billion of net withdrawals in April. All told, loan mutual fund AUM has declined by $2.56 billion since peaking at $175.1 billion in March.

 

LCD subscribers, please click here for full story and analysis, including the following charts:

  • Average effective yield of S&P/LSTA Index
  • LBO multiples
  • CLO issuance
  • Average new-issue yield to maturity for leveraged loans

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– Steve Miller

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

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Cash withdrawals from loan funds deepen in 6th straight outflow

Cash outflows for bank loan funds expanded to $1.2 billion in the week ended June 11, from $1.1 billion last week and $475 million two weeks ago, according to Lipper. This is the sixth consecutive outflow, for a net $3.7 billion withdrawal over that span, representing the largest multi-week depletion since a run of outflows in August 2011.

The outflow marks the eighth weekly withdrawal in the past nine weeks, a stretch that put an end to a 95-week inflow streak totaling $66.7 billion. As with recent weeks, it’s lightly tied to redemption from exchange-traded funds, at just 2%.

The trailing four-week reading expands to negative $859 million per week, from negative $618 million last week. The current observation in this statistic is the deepest since the week ended Sept. 7, 2011.

Year-to-date inflows now total just $2.4 billion, of which $817 million, or 34% of the sum, is ETF-related. In the comparable year-ago period, inflows were $24.3 billion, with 13% tied to ETFs.

The change due to market conditions was positive $102 million this week. That’s barely measurable against total assets, which stood at $109.6 billion at the end of the observation period, with ETFs comprising $8.2 billion of the total, or approximately 8%.

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– Matt Fuller

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