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Europe/Trump: Bankers Optimistic on Primary Issuance as Markets Pare Early Losses

European markets are shrugging off their knee-jerk reaction to Trump’s victory in the U.S. Presidential Election, with many asset classes now starting to pare their early losses.

Credit seems to be slightly outperforming equities, and leveraged finance traders say that while secondary prices were marked down a point or more early in the session, the lack of actual selling has seen prices recover. Moreover, bankers are optimistic that primary activity in Europe will be largely unaffected by the result.

Equity markets reacted fastest and hardest to the news. The Nikkei shed nearly 5.5%, illustrating how bearish the market tone was first thing. The FTSE 100 initially fell more than 100 points, but is now slightly in the green, while the Eurostoxx was down more than 2%, and is now just 1% in the red.

All eyes will now be on the U.S. market open, and here the futures are indicating a sharp move south. The Dow Jones Industrial Average is forecast to open more than 300 points, or roughly 2%, lower (note though, that as reported the futures market was projecting a 400-point fall earlier this morning).

Safe-haven assets meanwhile are seeing their rally fade a little. The Bund yield was five basis points tighter earlier in the session, but is now two basis points tighter, at 17 bps. The gold price is up 2.25%, having been roughly 2.5% higher in early trading.

The iTraxx Crossover is a touch wider than at the open, having now moved out 12 bps to 338, but secondary prices show credit is outperforming equities. Indeed, loan traders across the board say the market opened a little softer, but has now reversed its losses, and there were no forced sellers.

If anything, market participants are frustrated that their hoped-for buying opportunities did not materialize. “Not many sellers are appearing, and we were hoping for some opportunities,” commented one trader. “Some loans were initially down a quarter- to half-point, but quickly got back to where they were, and offers are static because there’s a queue of people looking to buy paper.”

“Loans were half a point down, but are now back to where they were last night,” confirms another market participant. “U.S. equity futures are down, but that was all very short-lived, and now high-yield is back to normal. We are even seeing some investors that have gone in this morning looking for bargains, but are now having to lift offers.”

High-yield secondary players paint a similar picture. “Initially we saw the Street trying to mark prices down, but there has been limited trading at lower levels,” said one buysider. “There is no panic-selling, and everything is very measured and orderly. Prices are coming back now, and any trading is not far off yesterday’s closes as credit outperforms equities. You have to remember too that we have CSPP and CBPS, which limits any widening. Given how muted the market reaction is, it wouldn’t surprise me to see issuance quite soon.”

As for primary, all eyes will now turn to the cross-border loan financing from Genesys, which held bank meetings on Monday and Tuesday, but has deliberately waited for the outcome of the U.S. election to release price guidance. Meanwhile in the bond market Perstorp is also out with a cross-border offering. It is roadshowing until next Monday, and so has plenty of time to gauge the market reaction.

As to whether more new issues will follow, bankers sound fairly confident that just like secondary, concerns will be shrugged off quickly — in the short-term at least. Earnings season may keep a lid on high-yield supply in the near term, while bankers suggest that how rates move in response will be a key factor in year-end supply.

“I don’t think the result has a big impact on the market’s ability to do deals, but the big question will be what happens to rates, as I would expect most pre-year-end issuers to be sensitive to double-Bs and rates,” comments a banker.

Meanwhile loan bankers are optimistic that the near-term pipeline remains in place, but admit it’s too early to truly gauge how supply will impacted. “Generally I agree that the loan pipeline should continue to come through, though I think it’s too early to really tell,” said one banker. “European credit is still well-bid, but we will have to see when the U.S. shows up. I think loan deals can still go ahead, though transactions might require some tweaks to pricing.” — Staff reports

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Amid Demand Surge, Leveraged Loan Secondary Prices Inch Further Above par

leveraged loan break prices
The average price at which U.S. institutional loans entered the trading market hit 100.10% of par in October – the highest level since June 2015 – after finally topping par in September, according to LCD.
The recent rise in leveraged loan prices comes as investors continue to pour money into U.S. loan funds and ETFs, for two main reasons:

  • Investors are looking to take advantage of loans’ floating-rate nature, in the face of what looks to be a Fed rate hike in December
  • Leveraged loans in October were one of the few higher-yielding investments (relatively speaking, anyway). The asset class returned 0.83% in October, easily topping high-yield bonds (0.31%), investment grade bonds (-0.83%), stocks (-1.82%), and 10-year Treasuries (-1.90%)

That investor appetite in the asset class has led bids on loan paper in the secondary market steadily higher since February of this year. – Tim Cross

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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 www.lcdcomps.com, 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.

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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 www.lcdcomps.com, an offering of S&P Global Market Intelligence. www.lcdcomps.com offers 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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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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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 www.lcdcomps.com, 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.

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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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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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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.