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US Leveraged Loan Funds See $510M Cash Withdrawal; Outflow Streak Hits 29 Weeks

U.S. leveraged loan funds saw a net outflow of $510 million for the week ended Feb. 10, according to Lipper. This expands upon an outflow of $405 million last week. Moreover, it’s the 29th-consecutive one-week outflow for a combined withdrawal of $15.9 billion over that span.

US leveraged loan fund flows
The net redemption for the sixth week of the year was mostly from mutual funds, with just 23%, or $119 million, linked to the ETF segment. That’s up in recent weeks, however, as the ETF influence was 18% of the outflow last week and 8% of the outflow the week prior.

Amid a modestly larger week-over-week outflow, the trailing-four-week average was fairly steady, at negative $599 million per week, from negative $584 million last week and negative $622 million two weeks ago. Recall that a negative $1.2 billion observation five weeks ago was the deepest reading in roughly a full year, or since a slightly wider negative $1.3 billion reading in the last week of 2014.

Year-to-date outflows from leveraged loan funds are now $3.4 billion, with 11% ETF-related. The full-year 2015 reading closed deeply in the red, at negative $16.4 billion, with likewise approximately 7% tied to ETF redemption.

The change due to market conditions this past week was little moved, at negative $439 million, or just 0.6% against total assets, which were $72.5 billion at the end of the observation period.

Just as with the close of 2015, the ETF segment currently accounts for $5.1 billion of total assets, or roughly 7% of the sum. — Matt Fuller

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27 Weeks and Counting: US Leveraged Loan Funds See $784M Cash Outflow

U.S. leveraged loan funds saw a net outflow of $784 million for the week ended Jan. 27, according to Lipper. This expands upon an outflow of $694 million last week and an outflow of $451 million the week prior. Moreover, it’s the 27th-consecutive one-week outflow for a combined withdrawal of $15 billion over that span.

US loan fund flows

The net redemption for the fourth week of the year was mostly from mutual funds, with just 8%, or $59 million, linked to the ETF segment. Last week, 60% was linked to ETF redemptions.

Amid a modestly larger week-over-week outflow, the trailing-four-week average deepens to negative $622 million per week, from negative $615 million last week but it was negative $762 million two weeks ago. Recall that a negative $1.2 billion observation three weeks ago was the deepest reading in roughly a full year, or since a slightly wider negative $1.3 billion reading in the last week of 2014.

Year-to-date outflows from leveraged loan funds are now $2.5 billion, with 7% ETF-related. The full-year 2015 reading closed deeply in the red, at negative $16.4 billion, with likewise approximately 7% tied to ETF redemption.

The change due to market conditions this past week was little moved, at negative $95 million, or essentially nil against total assets, which were $73.7 billion at the end of the observation period.

Just as with the close of 2015, the ETF segment currently accounts for $5.3 billion of total assets, or roughly 7% of the sum. — Matt Fuller

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This story first appeared on www.lcdcomps.com, LCD’s subscription site offering complete news, analysis and data covering the global leveraged loan and high yield bond markets. You can learn more about LCD here

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US Loan Funds See $694M Cash Withdrawal; 26th Straight Outflow

U.S. leveraged loan funds saw a net outflow of $694 million for the week ended Jan. 20, according to Lipper. This expands upon an outflow of $451 million last week, and it’s the 26th-consecutive one-week outflow for a combined withdrawal of $14.2 billion over that span.

loan fund flows

The net redemption for the third week of the year was mostly from mutual funds, with just 9%, or $60 million, linked to the ETF segment. Last week, 11% was linked to ETF redemptions.

Despite the larger week-over-week outflow, redemptions have been moderating in recent weeks, so the trailing-four-week average narrows to negative $615 million per week, from negative $762 million last week and negative $1.2 billion two weeks ago. Recall that the latter observation was the deepest reading in roughly a full year, or since a slightly wider negative $1.3 billion reading in the last week of 2014.

Year-to-date outflows from leveraged loan funds are now $1.7 billion, with 7% ETF-related. The full-year 2015 reading closed deeply in the red, at negative $16.4 billion, with likewise approximately 7% tied to ETF redemption.

The change due to market conditions this past week was the most deeply negative in five weeks, at negative $659 million, or nearly 1% against total assets, which were $74.6 billion at the end of the observation period.

Just as with the close of 2015, the ETF segment currently accounts for $5.4 billion of total assets, or roughly 7% of the sum. — Matt Fuller

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Leveraged Loan Fund Assets Slide To 33-Month Low

US loan fund assets

Amid negative investor sentiment, loan mutual funds’ assets under management contracted by $8.0 billion in December to a 33-month low of $115.2 billion, according to S&P Capital IQ LCD.

Part of that decline was, of course, caused by price declines. The S&P/LSTA Index 100 loans—the best proxy for loan fund portfolios—generated a market-value loss of 1.6% in December, which would account for roughly $2 billion of the overall AUM hit. It was the second-largest monthly dollar AUM decline for the category behind December 2014’s record loss of $9.9 billion. – Steve Miller

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This story first appeared on www.lcdcomps.com, LCD’s subscription site offering complete news, analysis and data covering the global leveraged loan and high yield bond markets. You can learn more about LCD here

 

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Leveraged Loan Mart Sees 1st Drop in Number of Investors Since 2009

leveraged loan investor groups

The number of institutional investors active in the U.S. leveraged loan space eased to 306 in 2015, from a record 318 in 2014, as a handful of hedge funds and other marginal players left the field, in some cases after jumping in early to try to catch the falling knife that became numerous energy issuers.

This is the first drop in number of loan market investors since 2009.

Still, as this chart illustrates, the number of accounts remains near the historical high. What’s more, arrangers say, committed players remain committed.

Thus, the average number of managers playing in any large institutional execution of $500 million or more ticked up to a fresh post-credit-crunch high of 76 in 2015, from 72 in 2014. – Steve Miller

leveraged loan investors - large loans

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This story is available to LCD subscribers here. Along with the U.S. loan investor universe it details

  • Primary market investors: banks v institutions
  • Amortizing term loan volume
  • Institutional investors, by type
  • CLO activity
  • Primary allocations, large v small
  • CLO managers
  • Mutual fund share of market
  • Share of loans offered +/- 95
  • Relative value share of market

 

 

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Third Ave’s liquidating debt fund holds concentrated, inactive paper

The leveraged finance marketplace is abuzz this morning ahead of a conference call to address to a plan of liquidation for the Third Avenue Focused Credit mutual fund following big losses this year, mild losses last year, heavy redemptions, and now a freeze on withdrawals. The news was publicly announced last night by the fund, and there will be a call at 11 a.m. EST for shareholders with lead portfolio manager Thomas Lapointe, according to the company.

Market sources yesterday relayed rumors of a near-$2 billion redemption from the asset class, and as one sources put forth, “the odd thing was it was difficult to trace the money that left, what was sold, and where it went.”

That was followed up by last night’s whopping, $3.5 billion retail cash withdrawal from mutual funds (72%) and ETFs (18%) in the week ended Dec. 9, according to Lipper, although it’s not entirely clear if that figure—the largest one-week redemption in 70 weeks—can be linked to Third Avenue. (LCD subscribes to weekly fund flow data from Lipper, but cannot see inside the aggregate observation.)

Nonetheless, it’s worthy of a dive into the open-ended fund, which trades under the symbol TFVCX. The fund shows a decline of 24.5% this year, versus the index at negative 2.94%, after a 6.3% loss last year, versus the index at positive 2.65%, according to Bloomberg data and the S&P U.S. Issued High Yield Corporate Bond Index.

It’s an alternative fixed-income fund that’s “extremely concentrated,” and “hardly representative of a ‘high yield’ or ‘junk bond’ fund,” outlined Brean Capital’s macro strategist Peter Tchir in a note to clients this morning. He highlighted that Bloomberg analytics show a portfolio that’s almost 50% unrated, nearly 45% tiered at CCC or lower, and just 6% of holdings rated BB or B.

The holdings are all fairly to extremely off-the-run, hence the trouble selling assets to meet redemption, and thus, the liquidation. The remaining assets have been placed into a liquidating trust, and interests in that trust will be distributed to shareholders on or about Dec. 16, 2015, according to the company.

Top holdings follow, and none have traded actively or very much in size of late, trade data show:

  • Energy Future Intermediate Holdings 11.25% senior PIK toggle notes due 2018; recent trades in the Ch. 11 paper were at 107.5.
  • Sun Products 7.75% senior notes due 2021; recent trades were at 87.5, versus 90 a month ago and the low 70s a year ago.
  • iHeartCommunications 14% partial-PIK exchange notes due 2021; block trades today were at 30 and 32, from 27 last month.
  • New Enterprise Stone & Lime 11% senior notes due 2018; odd lots traded recently in the low 80s, versus mid-80s last month.
  • Liberty Tire Recycling 11% second-lien PIK notes due 2021 privately issued in an out-of-court restructuring; trades reported in the mid-60s.

Amid those any many others of a similar ilk, the fund also reports a holding in Vertellus B term debt due 2019 (L+950, 1% LIBOR floor). The chemicals credits put the $455 million facility in place in October 2014 as part of a refinancing effort, pricing was at 96.5, and it’s now at 78/82, sources said.

“Investor requests for redemption … in addition to the general reduction of liquidity in the fixed income markets, have made it impracticable for FCF going forward to create sufficient cash to pay anticipated redemptions without resorting to sales at prices that would unfairly disadvantage the remaining shareholders,” according to the company statement.

“In line with its investment approach, FCF has some investments in companies that have undergone restructurings in the last eighteen months, and while we believe that these investments are likely to generate positive returns for shareholders over time, if FCF were forced to sell those investments immediately, it would only realize a portion of those investments’ fair value given current market conditions,” the statement outlined.

Further details are available online at the Third Avenue Management website. — Matt Fuller

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Huge high yield bond fund outflows: Why it’s not as bad as it seems

 

An LCD News story earlier today passed on incorrect information from data administrator Lipper regarding the Third Avenue Focused Credit fund that halted redemptions and is being liquidated. There was, in fact, a $111 million redemption from that fund this past week. A corrected story follows:

U.S. high-yield funds saw a net $3.5 billion retail cash withdrawal in the week ended Dec. 9, marking the largest one-week redemption since the record $7.1 billion outflow 70 weeks ago, or since the week ended Aug. 6, 2014, but it’s not as bad as it seems. Lipper today clarified with LCD that mutual funds this past week reported large seasonal distributions, but reinvestment has not yet been recognized, so it’s essentially a mid-read and look for a “catch up” in the weeks ahead.

This is a time of year when distributions “wreak havoc” with the flows data, according to Lipper. It’s possible that we’ll see the reinvestment characterized as inflows next week, but there also may be more distributions, Lipper added.

As per the flurry of news surrounding the liquidation of the alternative fixed income mutual fund Third Avenue Focused Credit, Lipper relayed that the fund-management group overall reported multiple outflows this past week, with $111 million specifically pulled from that open-ended fund. (LCD subscribes to weekly fund flow data from Lipper, but cannot see inside the aggregate observation.)

As for the one-week figure, see “US HY funds report largest cash outflow since record 70 weeks ago,” LCD News, Dec. 10, 2015. — Matt Fuller

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US Loan Fund Assets Continue to Dwindle, Though Outflows Ease

Loan fund assets

In October, loan mutual funds’ assets under management sank $1.6 billion, to $127 billion, amid further outflows from the asset class, according to data from Lipper FMI and fund filings.

On the plus side, it was the smallest decline in recent months, following negative $4.6 billion and negative $2.8 billion in August and September, respectively, and an increase of $343 million in July.

On the minus side, it leaves total loan AUM at the lowest point since May 2013 and down $48.1 billion from an apex of $175.1 billion in March 2014. – Steve Miller

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Leveraged Loan, High Yield Bond Players Take Pause Amid Choppy Markets

It was a light slate of leveraged finance issuance last week as loan and high yield bond players alike navigate an unsettled market while keeping watch on debt issuers such as Valeant, which helped put the entire pharmaceutical segment under a spotlight.

leveraged loan high yield bond issuance

On the leveraged loan side just four issuers braved the market with deals totaling $2.1 billion, down from a relatively healthy $8.7 billion the previous week. Much of the market is focusing on loans already launched into syndication, with many undergoing ‘price-discovery’, and subsequent changes.

“Few deals made it to the finish line unscathed,” writes LCD’s Chris Donnelly. “Virtually all the action was in clean-up.”

With the unsettled atmosphere – and with continued demand for higher-rated credits – yields on lower-rated loans (those stamped B+ or B by S&P) now are yielding 5.91% in the new-issue market, up from 5.8% the previous week, according to S&P Capital IQ LCD. Higher-rated credits (BB) continue to yield 4.23%.

The leveraged loan price discovery comes as investors continue to take cash out of the asset class. Indeed, U.S. loan funds last week saw their 13th straight withdrawal, totaling $5.6 billion. As well, assets under management at U.S. loan funds recently hit a 28-month low.

Year to date, U.S. leveraged loan volume totals $369 billion, compared to $476 billion at this point in 2014.

The choppy high yield bond market continues to plod along with a thin $1.8 billion in new issuance last week. That’s actually up from each of the previous three weeks (including a rare issuance-free week).

At the current pace, October will be the slowest month of the year for the asset class. There has been $3.7 billion in issuance so far this month, says LCD’s Matt Fuller. Year-to-date U.S. issuance is $229 billion, down 15% from the pace seen in 2014.

One potential bright spot: U.S. investors poured a whopping $3.3 billion into high yield funds last week, the most since 2011.

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US Loan Fund Assets Hit 28-Month Low

loan fund assets under management

Amid choppy market conditions and falling interest rates, loan mutual funds’ assets under management fell $2.8 billion in September, to a 28-month low of $128.6 billion, after receding $4.6 billion in August, according to data from Lipper FMI and fund filings.

Of course, September’s AUM reflected both outflows—which Lipper put at $1.5 billion during the month—and lower loan prices, what with the market value of the S&P/LSTA Index off 1.04% during the month, implying a $1.3 billion decline in fund AUM.

As this chart shows, retail investors have pivoted away from loan funds in the past 18 months after a muscular multiyear run of inflows that pushed loan fund AUM to an all-time high of $175.1 billion in March 2014. Since then, the category has shed $46.4 billion of AUM with just four positive months interspersed with 14 negative ones.

The reason investors have lost enthusiasm for the asset class over the past year and a half is largely, managers say, a result of falling rates and flagging rate expectations. Take the 10-year Treasury yield, which peaked at a 2.5-year high of 3.04% at the end of 2013 and has since fallen to 2.04% as of Oct. 16. – Steve Miller

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