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Leveraged loan funds see largest outflow since Aug. 2011, led by mutual funds

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Cash outflows from bank loan funds swelled to $1.66 billion during the week ended Oct. 22, up from a $946 million outflow in the previous week, according to Lipper. The reading reflects mutual fund outflows of $1.56 billion, plus a $98 million outflow from the exchange-traded fund segment, and it represents the largest outflow since the $2.12 billion recorded for the week ended Aug. 17, 2011.

The latest reading represents the 26th outflow in the past 28 weeks, for a net redemption of $16.8 billion over that span.

The trailing four-week average deepens to negative $1.22 billion from negative $897 million last week and negative $807 million two weeks ago. The four-week average surpasses the previous high reading of negative $944 million for the four weeks ended Aug. 24, 2011.

The year-to-date fund-flow reading pushes deeper into negative territory, at roughly $9.68 billion, based on a net withdrawal of $9.71 billion from mutual funds against a net inflow of $32 million to ETFs. In the comparable year-ago period, inflows totaled $46.65 billion, with 11% tied to ETFs.

The change due to market conditions was positive $322 million, versus total assets of $96.9 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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Final US risk retention has CLOs retaining 5% skin; equity throttle out

The terms of the final U.S. risk retention rule have been released, with little material change to the regulation with respect to CLOs, according to the LSTA.

This means that once the regulation goes into effect two years after it has been published in the Federal Register, CLO managers will have two methods by which to comply with the regulation, the manager as sponsor option or the arranger option.

Manager retention means the manager can retain 5% of the entire size of the CLO, vertically or horizontally.

The one piece of good news from the final rule is that the ‘cash throttle’ has been removed. This would have restricted the equity retention from receiving any payments before the notes began to amortise, which would have rendered retention via a horizontal piece unfeasible.

Loan arranger retention is where provided that the CLO buys 100% of eligible loan collateral, the manager would not have to retain 5% risk in the structure. Eligible collateral is defined as a loan tranche whereby the arranging bank retains 5% for the life of the loan. This is widely considered a non-option by market players given that banks are unlikely to agree to retain a portion of loans they underwrite for the purpose of the regulation.

The explicit third-party equity option has not been accepted, says the LSTA. Neither has the Qualified CLO concept or the expansion of the Qualifying Loan definition.

The FDIC votes on the regulation today, while the Federal Reserve will vote tomorrow.

All CLOs issued prior to the effective date are expected to be grandfathered.

Bram Smith, the LSTA’s executive director, today issued a statement expressing its disappointment with the final terms, which will “negatively impact American credit markets and make financing for U.S. companies more expensive and scarce.”

The statement continues, “Ironically, while the risk retention rule revealed today does not cover the vast majority of residential mortgages – one of the major sources of the financial crisis – the agencies have decided to proceed with a one-size-fits-all approach that unfairly harms CLOs, a historically safe financial product that in no way contributed to the financial crisis this rule aims to safeguard against in the future. In fact, CLOs performed exceedingly well throughout the financial crisis, and no investor has ever lost money on a senior CLO note.” – Sarah Husband

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Balance Point Capital adds hire, Nathan Elliott, for middle-market deal execution

balanceBalance Point Capital Partners hired Nathan Elliott for underwriting and execution of debt financing to middle-market companies.

He joins the Westport, Conn.-based company as a vice president. He will report to managing partner Seth Alvord and partner Justin Kaplan.

Previously, he was a vice president at Jefferies Finance, where he was responsible for due diligence and underwriting of loans and bridge financings for sponsor-led buyouts. Prior to that, he worked at GE Capital.

Balance Point Capital Partners invests mezzanine and equity capital into U.S. lower-middle-market companies generating revenue of $10-150 million, and EBITDA of at least $2 million.

Among the firm’s investments are game and toymaker Patch Products; New Jersey-based regional dental-management company Brighter Dental Care; Sacramento, Calif.-based security-alarm-monitoring company GHS Interactive Security; and radio broadcasters Digity Media and Connoisseur Media. – Abby Latour

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

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

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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