Default survey results show optimistic outlook for leveraged loans

LCD_Research_default_survey chart1 2014-12-12
Loan managers are constructive on the default outlook over the next two years, according to LCD’s latest quarterly buy-side survey taken in early December. On average, those polled said the default rate by amount will finish 2015 at 1.64% before increasing to 2.52% in 2016.

Putting this in context 
Technically, that would mean default rates would be lower in two years than they are now. After all, the rate at the end of November was 3.33%, and it’s on track to finish 2014 at 3.24%, assuming no defaults over the final few weeks of the year.

These figures, however, include Energy Future Holdings, which single-handedly increased the default rate by amount by 3.5 percentage points when it filed for bankruptcy in April. Sans EFH, which most participants view as an aftershock of the 2008/2009 credit crisis, the default rate was a mere 0.39% in November.

LCD subscribers can click here to read full story, analysis, and charts:

  • S&P/LSTA Leveraged Loan Index by issuer region
  • Average bid of first-lien loans
  • Shadow default rate (excluding EFH)
  • 2016 maturity wall
  • Average cash-flow coverage of outstanding loans
  • Average Leverage of large LBOs
  • Averaged cash-flow coverage for large-corporate LBOs
  • Maturity wall


– Steve Miller

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


Oil & gas leveraged loans: Secondary prices sink, yields soar

oil gas borrowing costs


Though the impact of the recent plunge in oil prices on the broader S&P/LSTA Leveraged Loan Index is less severe than in the high-yield market, as discussed here, this week was nevertheless particularly brutal for loans in the sector.

As of yesterday’s close, the average bid price of first-lien oil & gas Index loans had tumbled to 90.35% of par, from 94.90 at the Nov. 28 close and down from 96.77 at the end of October, pushing the spread to maturity implied by the average bid to L+731, from L+600 at the end of November. – Kerry Kantin


LMA Survey: European CLO issuance likely €10-15B in 2015

The LMA today released the results of its survey on the outlook for the syndicated loan market over the next 12 months. A summary of the key points follows, and the survey can be found here.

Competitive pressure in the market, and global geopolitical and/or economic risks, are the top-two respectively when it comes to factors people think will most influence the syndicated loan market over the next 12 months, according to the survey, while corporate M&A, followed by refinancings, are likely to present the best opportunities over the same timeframe.

As for syndicate loan volume expectations, just under half those surveyed believe there will be an up to 10% increase in volume, and 42% think it will be unchanged. Meanwhile, 47% forecast CLO issuance volumes will be in the €10-15 billion range.

Looking back at this year, increased investor appetite is identified as the greatest influence on secondary market liquidity, according to the poll. Sticking with secondary, 45% of respondents expect buyside appetite will not be matched by primary supply, and that liquidity will be deal-specific next year.

When it comes to the main barrier to developing market lending at the present time, the LMA found a close split between those citing legal uncertainty and inconsistent regional integration, while the primary factor driving developing market investment is widely seen to be the search for yield.

The survey garnered a disparity of views on where the property cycle is in Europe, while it found debt funds are likely to demonstrate the greatest growth in real-estate lending in 2015. – Staff Reports


Oil plunge taking no prisoners, though leveraged loans outperforming high yield (and the S&P)

Falling oil prices have taken a toll on price of energy-related stocks and credit instruments.

In the secondary loan market, credits such as Samson InvestmentFTS InternationalVantage DrillingFieldwood EnergyOcean Rig, and Paragon Offshore have taken a beating, with losses accelerating appreciably this week in the wake of the “Black Friday” plunge in oil prices.

That said, the sector’s damage to the broader market has been limited when compared to high-yield and equities. The reason is that oil and gas-related issuers make up 4.5% of the S&P/LSTA Index, excluding utilities. That compares to 16% for the Bank of America Merrill Lynch High Yield Index and 8.5% for the S&P 500, according to S&PDJ Index analyst Howard Silverblatt.

For this reason, energy-related issuers’ drag on loan returns was far lighter than for high-yield and equities since Nov. 1, as these tables show:

returns by asset class

returns, november

Within the oil and gas segment, loan prices have fallen less precipitously than high-yield and stock prices. That is understandable, of course, given that loans are higher in the capital structure.

oil and gas loan prices

Despite this relatively better performance, loan managers are concerned that oil-and-gas could present an unexpected credit risk to a market where default rates (excluding Energy Future Holdingsare running below trend ($$). For reference, about 35% of oil and gas Index loans are covenant-lite.

Since Oct. 31, the share of oil and gas Index loans trading below 90 has jumped to 39%, from just under 1%. For the moment, however, just 0.95% of energy loans are trading at 80 or less – the sort of distressed level that suggests the market is worried about immediate default risk.

oil gas trading levels


largest oil gas loan issuers


Follow Steve Miller on Twitter for leveraged finance news and analysis.


Leveraged loan break prices push higher in November as volatility ebbs

With the broader loan market on better footing last month, the average price at which first-lien institutional loans broke into the secondary market rose to 99.58% of par, from 99.20 in October.

It was also more profitable to play in the primary last month, as the gap between the average break price (99.58) and average OID (98.72) grew to 86 bps in November – the widest level since July 2013 – from 60 bps in October.

LCD subscribers please click here for full story, analysis, and the following charts:

  • Averaged difference between OID and price break
  • Averaged new-issue yield to maturity for leveraged loans

Loan break prices push higher in November as volatility ebbs


US Leveraged Loan Issuance: $28.6B in November, $513B YTD

us leveraged loan issuance


Leveraged loan issuance in the U.S. totaled $28.6 billion in November, up from the $21.5 billion recorded during a quiet October, according to S&P Capital IQ/LCD. Year to date, leveraged loan issuance totals $512.7 billion, compared to $572 billion through the first 11 months of 2013.

More one the leveraged loan market (all free):



US Leveraged Loan Returns Hit 5-Month High of 0.50% in November

Index chart 1

Amid strong investor sentiment and improving technical conditions in the leveraged loan market, S&P/LSTA Index returns climbed to a five-month high of 0.50% in November, from 0.26% in October.

The S&P/LSTA Index is up 2.89% in the year to date, versus 4.80% during the same period in 2013. The Loan 100, by comparison, lags the broader Index in the year to date, at 2.46%, versus 4.58% during the first 11 months of last year. Here, too, returns are at the lowest level since 2011, when the Loan 100 gained 0.63%.



CLO roundup: U.S. supply beats forecasts, Europe nears upper limit

CLO activity in the U.S. was curtailed by the Thanksgiving holiday, with just three U.S. CLOs pricing last week.

Europe managed two transactions, but the primary pipeline is hampered by waning investor appetite and widening liability spreads.

As a result, global issuance has risen to $132.87 billion, according to LCD.

Ahead of the Thanksgiving break, arrangers were focused on getting those deals priced that they could, and lining up further transactions for this week once the market returns. New-issue activity will be on hold again early next week as players head to Dana Point, Calif. for Opal’s CLO Summit this weekend.

LCD subscribers can click here for full story, analysis, and the following charts:

  • Deal pipeline
  • US arbitrage CLO issuance and institutional loan volume
  • European arbitrage CLO issuance and institutional loan volume

– Sarah Husband

Follow Sarah on Twitter for the latest CLO market news and insight.


Private equity: Sponsors are busy, but public-to-private deals remains scarce as stocks rise

public to private deals

In recent years the time-honored LBO process – a private equity shop finds a public company, buys it using debt, then cashes out later - has become a victim of its own success, as PE firms have helped encourage corporate America to slim expense lines, driving profit margins to all-time highs.

At the same time, record stock prices have driven purchase-price multiples up even as regulatory pressure has put a cap on leverage. These factors have hurt the ability of PE firms to find suitable LBO candidates despite their full war chests, which Prequin says totaled roughly $397 billion at the end of 2013.

Therefore, participants expect PE firms to continue to work their portfolio companies via tack-on deals, sponsor-to-sponsor trades, and recaps, when the window for such deals is open. Meanwhile, straight public-to-private deals remain most rare. – Steve Miller

This analysis is part of a longer look at new issuance in the leveraged loan space. It is available to LCD News subscribers here.

For leveraged finance news and market talk follow Steve Miller on Twitter.