Leveraged Loan Break Prices Top Par in US Trading Market

leveraged loan break price

After a 14-month stint in sub-par territory, the average price at which new-issue U.S. leveraged loans entered the trading market topped 100 in September, settling at 100.02, according to LCD, an offering of S&P Global Market Intelligence.

When you consider the broader loan market, conditions were ripe in September for at least some additional upside momentum, where breaks are concerned. The issuer-friendly supply/demand imbalance that surged to a hefty $12 billion in August began to shrink in September, though it remained far from par.

On the demand side, U.S. loan funds have now seen 10 straight weeks of inflows, per weekly reporters to Lipper, totaling $2.5 billion. Meanwhile, CLO issuance jumped to a 15-month high of $8.2 billion in September, from $5.9 billion in August, an impressive sum given the looming year-end risk-retention rules that have prompted many managers to act deliberately throughout 2016. – Staff reports
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This story first appeared on, an offering of S&P Global Market Intelligence. LCD’s subscription site offers complete news, analysis and data covering the global leveraged loan and high yield bond markets. You can learn more about LCD here.


Leveraged Loan Break Prices Near 100 After Impressive Run-Up

leveraged loan break prices

After dipping to nearly 97 cents on the dollar in February, the average price at which U.S. leveraged loans entered the trading market neared par in July – at 99.99 cents on the dollar – marking an impressive rebound for the asset class, according to LCD, an offering of S&P Global Market Intelligence.

Full disclosure: Credit quality is playing a role in the increased break price of late, as more higher-rated leveraged credits – those at BB- or better – have made their way through market. Still, the 99.99 break price is as high as it’s been since July 2015, according to LCD.

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This chart is part was taken from a longer piece of analysis, by LCD’s Richard Kellerhals. It first appeared on, an offering of S&P Global Market Intelligence. offers complete news, analysis and data covering the global leveraged loan and high yield bond markets. You can learn more about LCD here.


LSTA Unveils Revisions to Delayed Compensation Regime

The Loan Syndications and Trading Association (LSTA) today unveiled revisions to its proposed new delayed compensation regime, which is designed to reduce settlement times in the secondary loan market. The new regime will be implemented in two phases, with the first phase effective Sept. 1.

LSTA logoAs it currently stands, delayed compensation begins accruing to a buyer at T+7 in most circumstances in which a trade doesn’t close in that time frame. The LSTA is revising delayed compensation from a “no-fault” regime to a requirements-based regime. In short, the buyer will only receive delayed comp if it has taken certain steps and is ready to pay once the administrative agent is ready to close the trade, subject to certain exceptions.

The LSTA last month delayed the launch of the new regime until Sept. 1 to guarantee ample opportunity for stakeholder input. As before, the new regime targets a minimum of T+7 settlement for loans that trade on par documentation, but now the buyer will be required to execute the confirmation and assignment agreement by T+5 in order to receive delayed comp, which is a day earlier than originally proposed. The change is designed to accommodate some market participants who need a one-day lead time—the time between when the agent is ready to close and when the buyer can make funds available—to settle some trades, said the LSTA’s General Counsel, Elliot Ganz.

To provide market participants with time to adjust to the change, the new regime will be implemented in two phases. In the first phase, which will be effective Sept. 1, the buyer will be required to execute the confirmation and assignment agreement by T+6 and select a settlement date of T+7 or earlier to receive delayed comp; buyers won’t be penalized for longer designated lead times on their electronic settlement platforms.

In the second phase, which begins Nov. 1, the confirmation and assignment agreement will need to be executed by T+5 and lead times longer than one day will not be permissible.

For additional details, please see the LSTA’s memorandum, which is attached. — Staff reports

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This story first appeared on, an offering of S&P Global Market Intelligence. LCD’s subscription site offers complete news, analysis and data covering the global leveraged loan and high yield bond markets. You can learn more about LCD here.


TPG Specialty urges TICC shareholders to vote for its board nominee

TPG Specialty Lending, the BDC that lends to middle market companies, stepped up its fight for rival TICC Capital today as the two sides geared up for a proxy battle.

In a letter dated July 13, TPG Specialty urged TICC Capital shareholders to vote in favor of board nominee T. Kelley Millet at TICC Capital’s annual meeting on Sept. 2. TPG Specialty has tried unsuccessfully to acquire TICC Capital. Millet is CEO of Banca IMI Securities Corp.

TPG is calling to end an ineffective investment advisory agreement between TICC Capital and TICC Management. TPG says TICC Capital shares have grossly underperformed the S&P 500 and the BDC Composite Index since TICC Capital’s IPO in 2003, driven by a 57% decline in NAV. In the meantime, TICC has paid fees of over $140 million to its external adviser and management.

TICC Capital has pursued an unsustainable dividend policy, paying a dividend far exceeding net investment income, TPG Specialty said.

“Do not be fooled! These payments are not comprised solely of investment returns; stockholders are being paid back in part with their own money,” the letter to TICC Capital shareholders said. “More importantly, this strategy has unfortunately resulted in almost irreversible value destruction of NAV per share that will only continue without quick and decisive action.”

TICC Capital has countered with its own board nominee, Tonia Pankopf, who is up for re-election this year. In a letter to its shareholders yesterday, TICC Capital sought support from shareholders to vote in favor of Pankopf and reject TPG Specialty’s plan to terminate its investment advisory agreement with TICC Management.

TICC Capital’s executive officers and directors together hold 5.7% of common stock, the proxy statement filed on July 12 showed. Ahead of the previous shareholder meeting, the board owned 1.8% of common stock, a proxy filed in April 2015 showed.

TICC Capital has also been fighting on another front. NexPoint Advisors, an affiliate of Highland Capital Management, submitted a proposal to cut fees and invest in TICC Capital. In the letter yesterday, TICC Capital told shareholders not to support any potential proposal from NexPoint.

TPG Specialty Lending’s investment portfolio reflects its ongoing interest in TICC. As of March 31, TPG owned 1.6 million TICC shares, representing 0.9% of its portfolio.

TPG has repeatedly said that TICC’s external manager has failed the BDC and, given the chance, TPG could improve returns for shareholders.

“We remain committed to affecting change at TICC,” co-CEO and Chairman Josh Easterly said in an earnings call in May. — Abby Latour

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US High Yield Mart Slips Further post ‘Brexit’ Vote, But Volume Stays Light

United Kingdom high-yield credits were lower in a second-consecutive session since the Brexit-vote shock, and the U.S. followed suit again this morning, with pricing off 1–3 points across widely held credits. However, trading volume was once again fairly light, and there were mixed signals about cash flow, with both bid-wanted and offer-wanted circulars making the rounds, according to sources.

As for some of the big names trading, the Numericable 7.375% notes due 2026—at $5.19 billion the largest single tranche ever sold—this morning traded two points lower, at 95.75, for just over a four-point loss tied to Brexit adjustments, and the First Data 7% notes due 2023—at $3.4 billion the seventh-largest single issue—today has traded one point lower, at 99.5, for a net-three-point loss amid the rout.

Over in commodities, Chesapeake Energy 8% second-lien notes due 2022 were marked down at 82/84 this morning, according to sources, for nearly a six-point decline in recent days, while the Comstock Resources 10% first-lien notes due 2020 slumped three points, to 76.5/79.5, for approximately a five-point decline over the past week.

As for recent new issues, Dell 7.125% notes due 2024 shed another full point today, to 100.5/101, for roughly a three-point decline in recent days, while Weatherford International 7.75% notes due 2021 were down by another point as well, at 94.75/95.75, according to sources. Take note that both were originally issued at par three weeks ago.

In the synthetics market, the unfunded HY CDX 26 index slipped three-eighths of a point, to a 101.375 context. This is down 1.2% week-over-week and marks a three-month low dating to the twice-annual series rollover adjustment on March 28. — Matt Fuller

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This story first appeared on, an offering of S&P Global Market Intelligence. LCD’s subscription site offers complete news, analysis and data covering the global leveraged loan and high yield bond markets. You can learn more about LCD here.


US Leveraged Loan Bids Fall in Loan Secondary in Wake of Brexit

With markets globally under pressure, the secondary loan market opened lower this morning following news overnight that the U.K. voted to leave the European Union.

Traders relay that bids are down more than offers as players digest the news. Bids for certain higher-quality names appear to be off about half a point, though other loans are bid roughly a point lower, and high-beta names are off even more.

Among liquid issues, the Charter Communications I term loan due 2023 (L+275, 0.75% LIBOR floor) slid to a 99.625/100.125 market this morning, versus a 100.125/100.375 market yesterday; the Avago Technologies TLB due 2023 (L+350, 0.75% floor) was marked at 99.5/100, down from 100/100.25 yesterday; and the Community Health Systems H term loan due 2021 (L+300, 1% floor) fell to a 96.75/97.5 market, from 97.75/98.25 yesterday, sources said.

Bids are off much more appreciably for higher-beta names: the Avaya B-7 term loan due 2020 (L+525, 1% floor) was quoted at 67/70, versus 70/71 yesterday, and the J. Crew Group B term loan due 2021 (L+300, 1% floor) slumped to a 67/69 market, versus 71.25/72.75 yesterday.

Looking at some credits with European exposure, the Gates Global B term loan due 2021 (L+325, 1% floor) was quoted at 93/95, versus 95/96 yesterday, and the Samsonite TLB (L+325, 0.75% floor) was marked at 99.5/100.25 earlier this morning, versus 100.75/101.25 yesterday.

A $113.9 million BWIC that was scheduled for today is still on, though sources said that names will now trade on a first-come, first-served basis; buyers are no longer being asked to leave bids open until 1:30 p.m. EDT per the original terms. The portfolio, which is believed to be a 1.0 CLO, contains roughly 100 tranches of debt, most of which are loans, though it also contains positions in notes issued by a handful of pre-crisis CLOs as well as a few equity positions. —Kerry Kantin

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This story first appeared on, an offering of S&P Global Market Intelligence. LCD’s subscription site offers complete news, analysis and data covering the global leveraged loan and high yield bond markets. You can learn more about LCD here.


European Leveraged Loan Primary Market Stoic in Face of Brexit

While European leveraged loan players have been stunned by Brexit, the U.K.’s decision to leave the European Union on Thursday, there is a sense of stoic pragmatism that the market will remain relatively stable over the coming few months. For the moment though, participants have spent the morning trying to get some clarity amid turbulence in wider markets.

“This is not a great day to be able to take a balanced perspective,” said one banker. “We need to take at least the weekend to see the wider issues, but it’s too early yet.”

european leveraged loan returns

European leveraged loan returns

Although equity markets have plunged this morning — and sterling has dipped to its lowest level against the dollar in more than 30 years — in the loan secondary market bids are off only 1.5–3 points, though sources note the full impact of the referendum result has not yet been felt here.

“There are still names out there in the secondary market trading at par, and there are still buyers out there buying,” said one banker. “At the moment this is an FX story, but it’s not yet a loan market story — that won’t emerge for the next few weeks.”

Others agree that the loan market will hold its nerve in the coming few weeks, but that more time will be needed to get a full view of the prospects for new issuance and investor appetite. “We will find stability, it’s just a question of when,” said a senior banker in London. “Deals will get done. There’s not a huge market dislocation, we just have to take this day by day.”

In the immediate future though, a raft of potential opportunistic transactions that had been lined up to be launched last week has already been shelved. A number of sponsors were said to have been waiting until after the voting results to officially sign up for and mandate opportunistic deals, but arrangers say those deals that had been prepared are being put back into cold storage.

“We discussed an opportunistic refinancing yesterday,” said one banker. “That’s off the table, of course, as it was subject to an acceptable [Remain] outcome to the referendum. There were a lot of opportunistic issuers that wanted to benefit from the momentum in the market post-referendum. They were anticipating that Monday would be a very bullish day, and would be the right time to tap the market.”

But while opportunistic transactions are off the table, market participants are stoic, and remain hopeful that the European leveraged loan market will remain stable in the longer term. “There won’t be any dividend recaps launched today, but the market will recover,” said one investor in London. “People will still want yielding assets.”

Another fund manager agrees: “In the cold light of day, it is a long runway to anything actually happening. The uncertainty doesn’t help, but I don’t see a vast impact on earnings profiles.”

Others sources agree that in the long term, the loan market remains a stable option for investors and issuers, and that new-money transactions that are well-structured and positively priced will continue to get traction. In recent weeks, some arrangers are understood to have negotiated slightly better terms on their economic flex to help address the risk of a Leave vote, but it’s too early to know whether there will be a marked change in clearing yields.

Market participants are optimistic that new deals will soon come to the market to test appetite, although sources note that smaller transactions that rely on European commercial bank support will likely be easier territory than those that rely on institutional demand, given the potential distraction of relative-value plays elsewhere.

“The big picture will be that the wider markets are going to be very volatile,” said one account manager. “But at a micro level, the question is simply whether you want to lend to a company or not. There will be no real impact on European-only businesses.”

With only €1.75 billion of volume (of which €950 million is institutional debt) in the forward calendar, according to LCD, an offering of S&P Global Market Intelligence, there are few deals that have been pencilled in to face the new market paradigm in the coming few weeks.

The two largest deals in the pipeline are the financing backing the acquisition of Bilfinger B&F by EQT, and the senior and second-lien financing package to support Partners Group’s takeover of Foncia. The latter provides services for the residential real-estate market and is regarded as a strongly French prospect, while Bilfinger Building and Facility operates in Germany, Austria, and Switzerland, but also has operations in the U.K.
Following these deals, the auctions now out in the market could be more impacted by the Brexit vote, if sponsors become uncertain over valuations or financing costs, leading to deadlines being extended. “There are auctions coming through with deadlines in the next couple of weeks,” said one banker. “Will we want to hold people to that? I expect the market to be more pragmatic than that.” — Nina Flitman

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Citi Names Raja as Head of EMEA High Yield Trading

Citi have announced that Amit Raja has become Head of EMEA High-Yield Trading, in addition to his current responsibilities as Global Head of Distressed Trading and EMEA Head of Par Loan Trading, effective immediately.

This follows news that David Cohen, the now previous Head of EMEA Flow Credit Trading, will be leaving Citi. To ensure continuity, Cohen will continue to manage the investment-grade trading desk until the end of June, and is involved in the succession process. Cohen joined Citi in New York in 2010. — Luke Millar

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Capital Southwest new deals total $35M in 4Q; sees market pick up

Capital Southwest originated $34.6 million in six new investments in the recent quarter when the flow of middle market deals slowed generally.

Since the end of the quarter, the volume of upper middle market deals has increased, and terms and spreads have tightened significantly, Capital Southwest CEO Bowen Diehl in an earnings call today for the company’s fiscal fourth quarter ended March 31.

Similarly, the number of deals in the lower middle market decreased late in the March quarter and early in the June quarter. Lower middle market deals traditionally take longer to close and real-time pricing terms and structural trends are far less transparent.

Diehl said risk premiums on lower middle market deals have tightened in the past few months.

“In the past several weeks, however, we have experienced a considerable pick-up in our pipeline of quality, lower middle market deals,” said Diehl.

Among the new deals in the quarter ended March 31 were Chandler Signs and Hygea Holdings. Joint venture partner Main Street Capital also added debt investments to Hygea and Chandler Signs in the quarter ended March 31.

Capital Southwest’s subordinated debt and equity investment in signage company Chandler Signs totaled $6 million. An investment in Hygea Holdings included $8 million in first lien debt and equity warrants. Hygea Holdings is a physician services provider based in Doral, Fla.

The other new investments of Capital Southwest were $5 million of first-lien debt to TaxAct, $4.6 million of first-lien debt toDigital River, $7 million of first-lien debt to Vivid Seats, and $4 million of first-lien debt to Imagine! Print Solutions.

Dallas-based Capital Southwest, an internally managed BDC whose shares trade on the Nasdaq under the symbol CSWC, has been shifting its investment portfolio to middle market loans from equity. Last year, the company spun off some assets into an industrial growth company to shareholders.

Since June 2014, Capital Southwest has exited legacy portfolio companies totaling $222 million. The company is transforming its portfolio from cash and non-yielding investments to assets that generate recurring income. The portfolio is now made up of 59% of investments that generate recurring income, up from 1% in June 2014, before the strategy change.

The investment portfolio grew to $178 million as of March 31, from $135 million as of Dec. 31.

Investments in the I-45 Senior Loan Fund increased to $36 million from $28 million at year-end. The I-45 SLF is a joint venture with BDC Main Street Capital that invests in syndicated senior secured loans to upper middle market companies. — Abby Latour

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How did ACAS become a takeover target? Answer’s in the portfolio mix

How did American Capital become a takeover target? The answer lies in the lender’s equity-heavy, low-yielding investment portfolio mix.

Ares Capital, which trades on the Nasdaq under the ticker ARCC, announced on May 23 it would buy American Capital in a $3.4 billion deal, excluding the company’s mortgage management businesses. American Capital trades on the Nasdaq as ACAS.

One of American Capital’s strategies was its trademarked One Stop Buyout, where it could invest in debt ranging from senior to junior, as well as preferred and common stock, acquiring control of an operating company through a transaction.

However, the accumulation of equity did not allow the company to maintain the steady dividend growth that investors had grown to rely on.

In November 2008, the company stopped paying dividends and began evaluating them quarterly to better manage volatile markets. At the same time, American Capital announced an expansion into European middle market investing through the acquisition of European Capital. Also that year, American Capital opened an office in Hong Kong, its first office in Asia.

The news of the dividend policy change triggered a plunge in American Capital shares. Shares have persistently traded below book value since.

At its peak, the One Stop Buyout strategy accounted for 65% of American Capital’s portfolio. It has since slashed this to under 20% of the portfolio, of which less than half of that amount is equity. It continues to sell off assets.

In a reflection of the change in investment mix, S&P Global Ratings placed Ares Capital BBB issuer, senior unsecured, and senior secured credit ratings on CreditWatch negative, as a result of the cash and stock acquisition plan.

“The CreditWatch placement reflects our expectation that the acquisition may weaken the combined company’s pro forma risk profile, with a higher level of equity and structured finance investments,” said S&P Global analyst Trevor Martin in a May 23 research note.

At the same time, S&P Global Ratings placed the BB rating on American Capital on CreditWatch positive after the news.

“The CreditWatch reflects our expectation that ACAS will be merged into higher-rated ARCC upon the completion of the transaction, which we expect to close in the second half of 2016. Also, we expect ACAS’ outstanding debt to be repaid in conjunction with the transaction,” S&P Global analyst Matthew Carroll said in a research note.

Not the first time
But Ares Capital says it has a plan. In 2010, Ares acquired Allied Capital, a BDC which pre-dated the financial crisis. On a conference call at the time of the deal announcement, management said it plans a similar strategy for integrating American Capital, of repositioning lower yielding and non-yielding investments into higher-yielding, directly sourced assets.

Ares Capital managed to increase the weighted average yield of the Allied investment portfolio by over 130 bps in the 18 months after the purchase, and reduce non-accrual investments from over 9% to 2.3% by the end of 2012, Michael Arougheti said in the May 23 investor call. Arougheti is co-chairman of Ares Capital and co-founder of Ares.

“The Allied book was a little bit more challenged, or a lot more challenged, than the ACAS portfolio is today,” Arougheti said. Ares Capital’s non-accrual investments totaled 1.3% on a cost basis, or 0.6% at fair value, as of March 31.

“Remember, that acquisition was made against a much different market backdrop. And so, while the roadmap is going to be very similar… this can be a lot less complicated that that transaction was for us.”

The failings of American Capital’s strategy reached fever pitch last November, when the lender capitulated to pressure from activist investor Elliott Management just a week after it raised an issue with the spin-off plan.

American Capital’s management had proposed in late 2014 spinning off two new BDCs to shareholders, and said it would focus on the business of asset management. However, in May last year, management revised the plan, saying it would spin off just one BDC.

But Elliott Management stepped in, announcing in November that it acquired an 8.4% stake. It later increased its stake further, becoming the largest shareholder of American Capital. The company argued that even the new plan would only serve to entrench poorly performing management, and called for management to withdraw the spin-off proposal.

American Capital listened. Within days, American Capital unveiled a strategic review, including a sale of part or all of the company.

One reason for the about-face was likely its incorporation status in Delaware, which made the board vulnerable to annual election. Incorporation in Maryland, utilized by other BDCs, is considered more favorable to management, in part because the election of boards is often staggered.

Although American Capital had shrunk its investment portfolio in recent quarters, it had participated in the market until recently.

Among recent deals, American Capital helped arrange in November a $170 million loan backing an acquisition of Kele, Inc. by Snow Phipps Group. Antares Capital was agent. In June 2015, American Capital was sole lender and second-lien agent on a $51 million second-lien loan backing an acquisition of Compusearch Software Systems by ABRY Partners. — Abby Latour

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