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Leveraged loan fund outflows increase to $196M, all from mutual funds

U.S. leveraged loan fund outflows increased to $196 million for the week ended March 4, compared to $118 million in the prior week, according to Lipper. The latest outflow was once again entirely tied to mutual funds, with ETFs recording a $5 million inflow for the week. Last week, ETFs reported a $24 million inflow.

There has now been a total of $27.3 billion of outflows recorded over the last 47 weeks, with only three weeks seeing inflows over that span. The year-to-date outflow now sits at $2.9 billion, with 0% tied to ETFs, versus an inflow of $5.6 billion at this point last year, with 13% tied to ETFs.

The trailing four-week average declined to negative $52 million for the week, from negative $131 million last week and negative $212 million two weeks ago. Recall that the negative observation 10 weeks ago, at $1.3 billion, was the deepest in roughly 3.5 years, or since the week ended Aug. 31, 2011.

In today’s report, the change due to market conditions was positive $379.7 million, or roughly 0.43% against total assets, which were $87.8 billion at the end of the observation period. The ETF segment comprises $6.9 billion of the total, or approximately 8%. – Joy Ferguson

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Triumph Capital Advisors acquires Doral CLOs, other loan assets

Triumph Capital Advisors has acquired the management contracts of two active CLOs from Doral. The CLOs consist of roughly $703 million in assets under management, and bring Triumph Capital Advisors’ outstanding assets under management to roughly $1.7 billion.

The development is part of the agreement of Triumph Bancorp, Inc. via its wholly owned subsidiary Triumph Capital Advisors, LLC, to acquire all the equity of Doral Money, Inc. and certain related assets in connection with the Federal Deposit Insurance Corporation’s auction process for Doral Bank. Doral Bank was placed under FDIC receivership on Friday.

In addition to the CLO management contracts, Triumph has also assumed the primary assets of Doral Money – namely loans with a face value of approximately $37 million; and certain securities of the CLOs, which were divested to a third party immediately following the closing as part of an agreement entered into by Triumph Capital Advisors in connection with the transaction.

San Juan-based Doral hired a loan investment team in 2009, with Doral Leveraged Asset Management going on to price three CLO transactions between 2010 and 2012. The first, Doral CLO I has been called.

Dallas, TX.-based Triumph Capital Advisors launched in March 2013 as the credit-focused investment-management unit of bank holding company Triumph Bancorp, and it has issued two CLOs, both last year via Nomura.

Dechert LLP acted as legal advisor to Triumph Capital Advisors with respect to the assignment of the Doral CLO management contracts. – Sarah Husband

Follow Sarah on Twitter for CLO news and insights. 

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With Blemish-free February Leveraged Loan Default Rate Dips to 3.92%

leveraged loan default rate

In February, no new defaults cropped up in the S&P/LSTA Index. As a result, the lagging-12-month default rate edged down to 3.92% by amount, from 3.99% in January. By number of loans, the rate likewise fell to 0.73%, from 0.75%. – Steve Miller

This chart is part of a longer analytical story, available to LCD News subscribers, that also details

  • Leveraged loan default rate by number of deals
  • Defaulted issuers in last 12 months
  • Shadow default rate
  • Default ‘candidates’
  • 2016 leveraged loan maturity wall
  • cash flow coverage of outstanding loans
  • LBO leverage
  • Leveraged loan secondary bids

 

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Leveraged loans, high yield bonds post strong Feb. returns, tho no match for equities

loan returns vs other asset classes

Given the combination of rising demand for risk assets and rising rates in February, leveraged loan returns trailed those of equities – which jumped to a three-year high – and high-yield bonds, while beating investment-grade corporate bonds and 10-year Treasuries.

Since year-end, however, rates have been relatively stable. As a result, leveraged loan returns are running behind each of the other four asset classes LCD tracks here monthly. – Steve Miller

Follow Steve for news and insight on the global leveraged loan market.

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New LBO deals rein in leverage amid regulatory pressure

LBO leverage ratios

Regulatory pressure is curtailing how aggressively new leveraged buyouts are being structured, a fact made clear by recent credit statistics.

Since the Shared National Credit Review of last summer, the average debt multiple of new large LBOs – the most consistent sample LCD tracks when it comes to credit stats – has eased to an average of 5.6x over the past five months, from 5.8x during first three quarters of last year and a recent apex of 6.3x during the third quarter of 2014. – Steve Miller

 Follow Steve on Twitter for leveraged loan news and insight.

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Outflows to US leveraged loan funds dwindle to $25M; ETFs gain

us loan fund flows

Cash outflows from bank loan funds were just $25 million for the week ending Feb. 11, marking the lowest outflow reading since the week ending April 23, 2014, and not including two weeks of inflows within that time frame, according to Lipper.

This week’s outflow compares to outflows of $511 million and $443 million in the previous two weeks. For a third consecutive week, the redemption was offset by inflow to the exchange-traded-fund segment, at $31.4 million this week compared to just $579,000 last week.

The latest outflow represents the 31st consecutive weekly withdrawal and the 42nd outflow in 44 weeks, for a net redemption of $27 billion over that span.

The trailing four-week average declines to negative $429 million for the week, from negative $572 million last week and negative $537 million two weeks ago. The negative observation seven weeks ago, at $1.3 billion, was the deepest in roughly 3.5 years, or since the week ended Aug. 31, 2011.

The net $2.7 billion outflow for the first six weeks of the year, with 2% ETF-related, is in contrast to last year, which showed a net inflow of $4.2 billion for the same period, with 12% ETF-related. For the full-year 2014 outflows were roughly $17.3 billion, with ETFs representing about 3% of that total, or $516 million.

In today’s report the change due to market conditions was positive $306 million, or roughly 0.35% against total assets, which were $86.8 billion at the end of the observation period. The ETF segment comprises $6.8 billion of the total, or approximately 8%. – Joy Ferguson

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Leveraged loan funds see 30th straight investor cash outflow – $511M

Cash outflows from bank loan funds were fairly steady, at $511 million, for the week ending Feb. 4, versus $443 million last week and $738 million prior, according to Lipper. For a second consecutive week, however, the redemption was tempered by a small inflow to the exchange-traded-fund segment, at just under $1 million.

leveraged loan fund flowsThe latest outflow represents the 30th consecutive weekly withdrawal and the 41st outflow in 43 weeks, for a net redemption of $26.9 billion over that span.

The trailing four-week average expands modestly, to negative $572 million, for the week, from negative $537 million last week and negative $684 billion two weeks ago. The observation six weeks ago, at $1.3 billion, was the deepest in roughly 3.5 years, or since the week ended Aug. 31, 2011.

The net $2.7 billion outflow for the first five weeks of the year, with 3% ETF-related, is in contrast to last year, which showed a net inflow of $3.6 billion for the same period, with 9% ETF-related. For the full-year 2014 outflows were roughly $17.3 billion, with ETFs representing about 3% of that total, or $516 million.

In today’s report the change due to market conditions was positive $392 million, or roughly 0.5% against total assets, which were $86.6 billion at the end of the observation period. The ETF segment comprises $6.7 billion of the total, or approximately 8%.

Follow Matthew on Twitter @mfuller2009 for leveraged debt deal-flow, fund-flow, trading news, and more.

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Despite rebound, leveraged loan returns dragged down by energy

leveraged loan returns energy

While U.S. leveraged loans returned 0.33% in January, up from a dismal 1.25% loss in December, the energy sector again dragged on the market.

This segment of the S&P/LSTA Index produced a 4.02% loss in January, which shaved overall Index returns by 0.18 percentage points, to 0.33%, including a 0.07% market-value loss. Excluding the Energy losses, the S&P/LSTA Index returned a more muscular 0.51% on the month, including a 0.12% market-value gain. – Steve Miller

Follow Steve on Twitter for leveraged loan insight and analysis.

The full version of this story (available to LCD News subscribers).

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Leveraged loans gain 0.33% in January despite energy sector drag

monthly loan returns

The S&P/LSTA Index gained 0.33% in January after suffering a 1.25% loss in December, its deepest monthly setback since August 2011. The largest loans that comprise the S&P/LSTA Index 100 lagged the broader market in January with a 0.20% return. Energy again dragged on loan returns.

Full January analysis of the leveraged loan market, including volume, returns by asset class, fund flows, and more, is available here (subscriber link). – Steve Miller

Check out LCD on Twitter for more leveraged loan news and insight.

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LSTA issues CLO Refi Fact Sheet as market debates delayed-draw notes

There has been much focus on CLO refinancings recently, in particular where they concern U.S. risk retention regulation. On Friday the LSTA published a CLO Refinancing and Risk Retention Fact Sheet, which is designed to help market participants navigate the topic.

While CLOs issued before the Dec. 24, 2016 effective date for U.S. risk-retention regulation are grandfathered, many are concerned that any opting to refinance after that date will lose that grandfathered status – although there is much confusion around this point.

In its CLO Refinancing Fact Sheet, the LSTA says that while it is not clear how refinancings will be treated under the new risk-retention rules, it does not believe they should be considered a new securitisation transaction or regarded as a ‘work around’ for retention requirements under Dodd-Frank.

Meanwhile, in its January OnPoint, Dechert outlines the technical reasons why a CLO refinancing might cause the transaction to be caught by the regulation. While Dechert doesn’t believe the relevant agencies intended to subject CLO refinancings to the ‘Final Rule’, the technicalities around what constitutes a securitization transaction mean that a refi where new securities are issued could get caught up in the regulation. So absent any further clarification from the agencies, Dechert believes the market will operate as if a refi will fall within the scope of the Final Rule.

And that is what the market appears to be doing – with time and effort spent looking for ways to solve the potential refi issue. Sources suggest that while the CLO issuer and its investors may not ultimately look to utilise these ‘solutions’, they may be included in a transaction’s documentation to provide the parties involved with options.

The majority have opted to structure transactions with shorter non-call periods to allow for a refinancing to take place ahead of the effective date.

However, the number of managers using this option – this year CVC Credit Partners (Apidos XX), CVP CLO Manager (CVC Cascade CLO-3), and Prudential (Dryden 37) have structured CLOs with a shorter non-call periods, joining the 16 or so from last year – reduces the likelihood of this being a viable option for CLO managers, which would also need CLO liability spreads to tighten significantly to make the refinancing feasible.

The past few weeks have seen an increasing number of transactions price with non-call periods that fall after the effective date – Guggenheim (NZCG Funding), PineBridge (Galaxy XIX), 3i Debt Management US (Jamestown CLO VI), GSO/Blackstone Debt Management (Dorchester Park), and Apollo (ALM XII) – suggesting other options are being used.

Some managers have explored removing the refinancing option altogether in exchange for reducing the AAA coupon, and therefore improving the day-one economics for the equity.

Others still are considering the use of ‘delayed draw notes,’ whereby the notes issued in a refi are included in the original documentation. The solution is understood to have already been used in a U.S. CLO, according to Bloomberg, which reports that Apollo is among those managers that have used the strategy in its ALM XII CLO transaction, while sources say other managers are looking at its potential.

However, as is becoming the norm with more creative solutions to the issue, whether the approach will be deemed to comply with the regulation is being heavily scrutinised and debated.

While it’s not clear how the regulators are going to come down on the regular refinancings – due to the murkiness surrounding the fact no new loans are being securitized, but there are new notes being issued – the delayed-draw option may be considered a cleaner strategy.

“By taking this step and issuing securities before the risk retention effective date, managers are attempting to ensure that no new issuance of securities occurs after the effective date and thus no new securitization takes place after the rules take effect. This simply aligns the legal structure of the transaction with its intent, i.e., merely a re-pricing of selected notes of the original CLO transaction,” says the LSTA. – Sarah Husband

Follow Sarah on Twitter for CLO market news and insight.