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US Leveraged Loans Gain 0.12% on Friday; YTD Return Hits 3.17%

Loans gained 0.12% on Friday after gaining 0.22% Thursday, ending an impressive weekly run, according to the LCD Daily Loan Index.

The S&P/LSTA US Leveraged Loan 100, which tracks the 100 largest loans in the broader Index, gained 0.11% Friday.

In the year to date, loans overall have gained 3.17%.


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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.

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Par for the Course? Leveraged Loan Bids Rise as Market Tone Brightens

loans bid par or higher

The share of U.S. leveraged loans bid in the secondary market at par or higher – that’s 100 cents on the dollar – reached 20% this week, according to S&P Global Market Intelligence LCD.

While that’s well inside the 64% figure from a year ago, it’s a huge improvement from a mere 1.3% in January, demonstrating how much market tone has brightened of late (a factor here: actual cash inflows into the asset class during March, after a crippling string of withdrawals).

This analysis uses bids on loans contained in the S&P/LSTA Loan Index. – Staff reports

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This story is from a longer piece of analysis by LCD’s Kerry Kantin, originally published on www.lcdcomps.comLCD’s subscription site offering complete news, analysis and data covering the global leveraged loan and high yield bond markets.

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US Leveraged Loan Funds See Another Week of Mild Outflows; That’s Four Straight

us loan fund flows

U.S. leveraged loan funds saw a net outflow for a fourth consecutive week, with the redemption of $93 million in the week ended April 20, boosting the outflow to $617 million over the four-week span, according to Lipper.

Today’s negative reading was just 12% tied to the ETF space, at $11 million. In contrast, last week’s reading was much more ETF-related, at 29% of the outflow, and even greater the week prior, at 43% of the outflow.

With another outflow that was modestly larger, the four-week-trailing observation falls deeper into the red, at negative $154 million per week, from negative $99 million last week and negative $37 million two weeks ago.

Year-to-date outflows from leveraged loan funds are essentially steady at $5.3 billion, with just 4% ETF-related. A year ago at this juncture, it was also mostly all mutual fund outflows, at $3.5 billion, but versus a small inflow of $165 million to ETFs, for a net negative reading of $3.3 billion.

The change due to market conditions this past week was essentially positive 0.5%, with a gain of $330 million against total assets, which were $60.4 billion at the end of the observation period. ETFs represented about 9% of the total, at $5.5 billion. — Matt Fuller

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

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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.

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Mid-States Supply bought by Staple Street in bankruptcy court sale

Middle-market private equity firm Staple Street Capital has acquired Mid-States Supply Company through a bankruptcy court sale.

The buyer was the stalking-horse bidder in a Section 363 bankruptcy court auction. The purchase price was $25 million in cash, with a negative adjustment for working capital, plus certain liabilities, court documents showed.

The company filed Chapter 11 in February in the Western District of Missouri.

The bankruptcy court documents said Mid-States Supply Company initially owed $45 million under a credit agreement with Wells Fargo dating from 2011, a loan which eventually increased to $60 million. However, this amount had shrunk to $16 million by the time of the asset-sale closing, and was not assumed by the buyer.

SSG Advisors and Frontier Investment Banc Corporation were hired as investment bankers for the sale process.

Kansas City, Mo.–based Mid-States Supply sells pipes, valves, fittings, and controls, and provides related services to the refining, oil-and-gas, and industrial markets.

Staple Street Capital is investing from a $265 million fund, and targets $15–75 million of equity per transaction, aiming at control investments. Founders are Stephen Owens, formerly of the Carlyle Group, and Hootan Yaghoobzadeh, formerly of Cerberus Capital Management. — Abby Latour

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

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LSTA Risk-Retention Case vs. SEC Picks up after Court Ruling

The Loan Syndications & Trading Association has been given the go-ahead to use its same briefs in the district court as it did in a higher court, expediting the pace of this trial after a recent setback.

Judges for the U.S. Circuit Court for the District of Columbia ruled on March 18 that it lacked the jurisdiction to hear the LSTA’s suit against the Federal Reserve and Securities and Exchange Commission (SEC) over their interpretation and application of the risk-retention rules on CLO managers. This was because although the Fed and SEC relied on other statutes to implement risk retention that potentially gave the circuit court jurisdiction, the judges decided not to take up that jurisdiction due to the joint rulemaking across a number of federal agencies. The case has since been sent to the lower D.C. District Court.

The LSTA has since filed a motion with the district court to use the same briefs that it did in the court of appeals to expedite the case as the Dec. 24 deadline for implementation of risk retention continues to move closer. The defendants did not oppose the motion and the judge granted it on Wednesday. The LSTA and the government have until April 29 to submit their briefs with minor changes on them.

The district court, after reviewing the briefs will decide on whether to hold an additional round of oral arguments. After the arguments or whenever the judge is ready, he will decide the case and issue an opinion. It’s however expected that regardless of the outcome, the losing side will appeal the ruling and send the case back up to the circuit court.

As previously reported ($), if the courts rule that CLO managers are not “securitizers,” CLOs would likely be exempt from risk retention, while a ruling that the regulators failed to either properly define credit risk or consider alternatives would mean regulators may have to re-propose risk retention.

The case is the Loan Syndications and Trading Association v. SEC, 16-00652, U.S. District Court, District of Columbia (Washington) — Andrew Park/Sarah Husband

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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.

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2016 European High Yield Bond Issuance, by Country

european high yield bond issuance by country

French companies are the most active high yield issuers in Europe this year, with eight offerings totaling €1.9 billion, according to S&P Global Market Intelligence LCD.

Automotive engineering/production concern Faurecia was the largest French issuer, with a €700 million deal, most of which backed repayment of 9.375% notes (the new issue priced to yield 3.625%, making for a hefty cost reduction for the company). – Staff reports

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This analysis 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.

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More CLOs may be called as loan prices rally, cash to equity drops

The recent rally in loan prices has prompted equity investors to start exercising calls on CLOs, with potentially more on the way if the current upswing continues.

So far, two CLO 2.0s have been called this year, both in April. This follows 13 2.0 optional redemptions in 2015 and six in 2014 In total, 10 CLOs have been called this year, following 89 in 2015, 85 in 2014, and 75 in 2013, according to J.P. Morgan.

This year’s called 2.0 transactions are the Mill Creek CLO from 40/86 Advisors and Babson 2011-I, both of which were originally issued in 2011.

When looking at the factors that increase the likelihood of a call, analysts at Nomura determined that higher equity net asset values (NAVs), higher costs of funding, and lower cash flows to the equity increase the likelihood that a CLO gets called. Analysts at J.P. Morgan also cited the equity purchase price, loan sourcing conditions, and the type of investor holding the equity are additional factors.

The Mill Creek CLO, which is 15 months past its reinvestment period, saw average quarterly payments to its equity over the past few years of under 3%, well below the average CLO 2.0. Its most recent equity NAV was about 48% though, which is in the 82nd percentile across all 2.0s, according to data from Nomura analysts.

The Babson 2011-I, which is 19 months past its reinvestment period, similarly saw its average quarterly distributions to the equity fall to 2.9%, from 5%, while its NAV was around 44%, which is within the top quarter of CLO 2.0s.

Looking ahead, Nomura analysts see another nine CLO 2.0s past their reinvestment periods that are candidates for an optional call since their quarterly equity distributions have fallen by 1.2% or more and their equity NAVs are above 36%.

Analysts at J.P. Morgan believe that a sustained rally in loan prices could lead to more CLO 2.0s getting called since the call also provides an exit for some of the equity that has exchanged hands over the past few months.

The entire CLO 1.0 universe is otherwise past its non-call and reinvestment periods at this point. The 2006 vintages were over half of the total CLO 1.0s called last year followed by the 2007 vintage. Over the next few years, J.P. Morgan analysts anticipate that the 2007 vintage will take over as the most actively called. Typically CLO 1.0s that were called in 2015 had 32% of the original transaction size outstanding and were about three years past the end of their reinvestment periods.

The same goes for Europe
In Europe too, some expect improved secondary loan market prices to trigger more CLO redemptions. In its April 8 European Asset-Backed Barometer, Deutsche Bank Markets Research suggested several other deals issued in late 2005/2006 that may become economical to call, including Wood Street II (Alcentra), Green Park 2006-1 (Blackstone), Boyne Valley CLO (via AIB Capital Markets), and Theseus 2006-1 (Invesco).

There has been a marked increase in loan BWIC activity in both the U.S. and European secondary loan markets in recent weeks, some of which may related to CLO redemptions, sources said. Through April 8, 14 European BWICs totaling €744 million have been put up for sale, versus €1.2 billion from nine BWICs in the same period last year, according to LCD data. That’s a 56% increase in deal count over last year, although the volume figure trails by 40%. Meanwhile, in the U.S., there has been a flurry of BWIC and OWIC activity as well, with the amount of loans put up for sale via BWICs through April 8 standing at $5.5 billion, up from $1.6 billion in the year-ago period. CLO 1.0 redemptions have driven these portfolio sales.

Three European CLOs have been called so far in 2016, including BNPP IP’s Leveraged Finance Europe Capital IV, Versailles CLO M.E.I, and Dalradian European CLO IV. In 2015, LCD tracked 28 call notices, with 26 issued by CLO 1.0 transactions and two by CLO 2.0s. The most recent European CLO BWIC was for a pending CLO redemption from a large, established manager. — Andrew Park/Sarah Husband

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Leveraged Loans: Purchase Price Multiples on European LBOs Rise

european LBO purchase price multiple

LBOs in Europe are getting more expensive for private equity sponsors.

The average purchase price, as a multiple of trailing EBITDA, reached 10x in 2016’s first quarter, more than any full-year average, according to S&P Global Market Intelligence LCD.

The multiples paid on these buyouts fall across a wide range. Many of the deals that came to market in the first quarter were bought for an unremarkable multiple, in the 8–9x area, but a good handful of transactions topped 10x — some by a fair margin. – Ruth McGavin

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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.

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Assets at US Leveraged Loan Funds Grow for First Time Since July

loan fund assets under management

With leveraged loan prices surging in the secondary market in March, loan mutual funds’ assets under management grew by $2.54 billion during the month, to $109.64 billion, according to S&P Global Market Intelligence LCD.

This is the first time that loan fund assets under management have grown since July 2015, and it’s the largest increase since February 2014.

That being said, essentially all of March’s increase can be attributed to secondary market gains, rather than a groundswell of interest in the asset class from retail investors. – Kerry Kantin

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.

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High Yield Bond, Leveraged Loan Issuance Take Pause After Week of Jumbo Deals

US leveraged finance issuance

U.S. leveraged finance issuance returned to earth last week as the high yield bond and leveraged loan markets began to digest jumbo deals launched to investors the previous week.

All told, there was $7.6 billion in leveraged finance issuance last week, a steep drop from the $19 billion the previous week – when Numericable bolstered activity all-around – and the least since the week of March 11, according to S&P Global Market Intelligence LCD.

Year to date, U.S. high yield bond issuance totals $51.6 billion, down roughly 55% from this point last year. Leveraged loan issuance totals $104.8 billion so far in 2016, down 9% from the same period in 2015.

While the volume numbers are unimpressive for last week – $4.6 billion in high yield and $3 billion in leveraged loan issuance – investor tone is improving across the markets. The best example of this might be activity on loans already launched, and still in the syndications process.

“In the new-issue market, the strength is on display, with arrangers flexing down 13 deals over the past two weeks, while flexing higher only three,” writes LCD’s Kerry Kantin. “The market hasn’t seen this many deals flex lower since the beginning of August.”

In the loan market, a ‘flex’ is when pricing on a deal is lowered (favoring issuers) or increased (favoring investors), depending on investor demand (there’s more info on price flexes here).

Similarly, new issuance in the high yield bond market was limited last week, though investor sentiment has improved and bids for paper in the bond secondary increased, highlighting better appetite in market, writes LCD’s Matthew Fuller.

Investors remained largely on the sidelines regarding loan and high yield funds last week. U.S. loan funds saw a small, $73 million withdrawal – the third straight for the asset class – while high yield funds saw a similarly unspectacular $84 million inflow.

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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.