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Leveraged Loans: US braces for risk retention as volatility hits – CLOs

CLO roundup 2014-10-20 chart 1

Broader market volatility gave the CLO market cause for concern last week with widening liability spreads threatening to disrupt the new-issue pipeline over the coming weeks. Still, for others, the sharp drop in loan prices created opportunity, with one of last week’s transactions widely rumoured to be a print and sprint. This week should again be eventful with two industry conferences and the anticipated release of the U.S. risk retention rules.

Against this backdrop, U.S. CLO new-issue volume in the year-to-date rose to $101.01 billion by the end of the week, from 187 deals, according to LCD. During the same period a year ago the market had issued $61.42 billion from 127 CLOs. – Staff Reports

For more news, analysis, and data on the leveraged loan market and CLO segment check out or Loan Market Primer.

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Shenkman Capital Management launches first institutional loan mutual fund

shenkman_logoShenkman Capital Management today announced the launch of the Shenkman Floating Rate High Income Fund (SFHIX).

Shenkman said its existing clients were the primary source of capital for the institutional loan mutual fund, which launched with about $160 million in assets.

This is Shenkman’s second branded U.S. mutual fund. The other is the Shenkman Short Duration High Income Fund, which invests in high-yield bonds.

In addition to the new loan mutual fund, Shenkman also manages loan assets in a combination of separate accounts, private funds, and CLOs.

In the CLO market, Shenkman has priced two deals this year: its $552.5 million Adams Mill CLO via Nomura in July, and its $520.6 million Washington Mill deal via Bank of America Merrill Lynch in April. – Kerry Kantin

 

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Market Reset: Is this the new normal for leveraged loans?

Amid softening technical conditions and the risk-off theme that has dominated capital markets lately, loan yields have climbed 50-75 bps over the past month, with prices on loans falling markedly, as evidenced by the secondary bid distribution chart.

loan bids by range

Does the softer market represent a new normal for leveraged loans?

The outlook, as always, is in the eye of the beholder. In recent days, stability in the equity markets has allowed loan prices to find a bottom. That said, participants suggest the bias for the time being may be negative. Here’s why:

  • Loan fund flows: managers expect outflows to persist, what with rates falling in recent weeks. That will put more supply in the system as managers sell loans to meet redemptions.
  • Relative-value players: HY funds also remain net sellers of loans, participants say, further pressuring prices.
  • CLOs: The pace of prints remained robust in early October with managers inking $6.5 billion through the 16th, pushing year-to-date issuance to a record $99.9 billion. Still, players expect the number of new deals to fall significantly until conditions improve. That may drain liquidity from the system in the months ahead.
  • Supply: while off the post-credit-crunch highs of August, there remains $33.7 billion on the M&A forward calendar, much of which will hit the market over the final months of 2014. Given today’s flagging loan demand, placing this paper may be challenging.

 

This analysis is part of a more detailed LCD News story, available to subscribers here. – Steve Miller

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

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Leveraged loan fund outflows reach nearly $1B, led by mutual funds, 14th straight week of outflows

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Cash outflows from bank loan funds increased to $946 million during the week ended Oct. 15, according to Lipper. The reading reflects mutual fund outflows of $869 million plus a $76 million outflow from the exchange-traded fund segment.

The latest reading is an uptick from an outflow of $825 million last week and it represents the 25th outflow in the past 27 weeks, for a net redemption of $15 billion over that span.

The trailing four-week average deepens to negative $897 million per week, from negative $807 million last week and negative $686 million two weeks ago. This is the largest average since a negative $944 million reading for the four weeks ended Aug. 24, 2011.

The year-to-date fund-flow reading pushes deeper into negative territory, at roughly $8 billion, based on a net withdrawal of $8.2 billion from mutual funds against a net inflow of $131 million to ETFs. In the comparable year-ago period, inflows totaled $45.9 billion, with 11% tied to ETFs.

The change due to market conditions was negative $829 million, versus total assets of $98.3 billion at the end of the observation period. The ETF segment comprises $7.4 billion of the total, or approximately 8%. – Joy Ferguson

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Sikich hires growth-company specialist Hampton for capital markets team

sikich_logoMiddle-market investment bank Sikich has hired Ryan Hampton to join its capital market team.

Hampton joins as a director.

He has specialist experience in raising capital for emerging growth companies across industries.

Previously, Hampton was a vice president of investment banking at Clark Dodge & Company/Advanced Equities. He was also a vice president at Bank of America Merrill Lynch, where he completed numerous mergers and acquisitions and raised capital for a range of companies. – Abby Latour

Follow Abby on Twitter @abbynyhk for middle-market deals, leveraged M&A, distressed debt, private equity, and more

 

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Gladstone Capital expands middle-market debt origination team with LA hire, Zoltan Berty

gladstoneGladstone Capital Corp., a BDC that trades on Nasdaq under the ticker symbol GLAD, has announced Zoltan Berty is joining the company to lead West Coast debt origination efforts of privately held middle-market companies.

Berty was hired as a managing director and will be based in Los Angeles.

He joins Gladstone from Caltius Mezzanine, a mezzanine fund investing in junior capital and minority equity investments in middle-market companies, where he was a principal.

Previously, he was a vice president at D. E. Shaw Direct Capital, where he originated investments across the capital structure, including senior debt, mezzanine, and equity. He was also a director at CapitalSource focused on senior and subordinated debt investments for buyouts and recapitalization deals.

Berty has also held credit management and debt underwriting positions at Transamerica Technology Finance and Fleet Capital.

GLAD invests in senior, second-lien, and subordinated term loans and equity of small- to mid-sized U.S. companies. – Abby Latour

Follow Abby on Twitter @abbynyhk for middle-market deals, leveraged M&A, distressed debt, private equity, and more