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.


LSTA files suit against Fed, SEC over CLO risk retention

The Loan Syndications and Trading Association (LSTA) has filed a lawsuit against the Federal Reserve and the Securities Exchange Commission over the final risk-retention-rule release last month.

The petition for review, filed Nov. 10, alleges the final rule is “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.”

The petition for review represents the first step in legal proceedings that the LSTA has taken against regulators in an effort to provide the CLO market with relief from the final risk-retention rule, which will require CLO managers to retain 5% of the deal. It is expected to take effect in about two years.

The LSTA said it filed the suit “reluctantly” and as a last resort. “The LSTA believes the regulatory agencies’ one-size-fits-all solution to risk retention with respect to collateralized loan obligations (CLOs) disproportionately punishes an industry that was not involved in the financial crisis, suffered practically no losses and currently provides critical financing to over 1,000 non-investment-grade companies,” LSTA executive director Bram Smith said in a statement.

“We have sought a reasonable solution for years and worked tirelessly to provide the agencies with workable and practical options because we believe the negative impact of the risk-retention rule on the CLO market and broader economy will be significant,” Smith added. “None of our material proposals were implemented into the rule.” – Kerry Kantin


CLO roundup: Pricing schedule stays busy as European spreads widen

CLO roundup 2014-11-10 chart 3

Last week was an active one for the U.S. as market players looked to price CLO transactions ahead of the shortened Thanksgiving week. In Europe, meanwhile, November saw its first two pricings last week ahead of what could be a busy push into year-end. The big question, however, is whether widening liability spreads in Europe will lead some issuers to put transactions on hold until 2015.

Global issuance stands at $130.77 billion, according to LCD.

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.


Leveraged loan issuers see 9% EBITDA growth in 3rd quarter

EBITDA growth loan issuers

Healthy economic growth in the third quarter helped leveraged loan issuers deliver another quarter of solid cash-flow growth. Year-over-year EBITDA growth averaged 9% among S&P/LSTA Index issuers that file publicly with the SEC, according to data from S&P Capital IQ. That is roughly on par with the second quarter’s pace, and it’s at the wide end of the recent high-single-digit range. – Steve Miller

This story is from a longer piece of analysis, available to LCD News subscribers, that also details

  • Leverage of outstanding loans
  • Leverage of LBO loans
  • Cash flow coverage

Leveraged loan prices sink in trading as market volatility heats up

Amid October’s volatile market conditions, the average price at which first-lien institutional loans broke into the secondary slid to 99.20% of par, from 99.75 in September.

Another indication of the rocky conditions was that a mere $19.6 billion of loans broke for trading in October. That’s the lowest total since January, which is typically a slow month in terms of volume as arrangers begin to roll out deals after the holidays. –Kerry Kantin

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

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



US Leveraged Loans Return 0.26% in Rough October

leveraged loan returns US

The loan market began October like a bear and ended the month like a baby bull.

After slumping during the opening weeks of the month, loan prices rebounded in late October as technical conditions and investor sentiment improved. Indeed, the S&P/LSTA Index was able to eke out 0.26% gain by Halloween after racking up a 0.86% loss through Oct. 16. In September, by comparison, the Index was off 0.60% – its weakest performance since May 2012 – as a risk-off theme prevailed throughout the capital markets.

As usual, the largest loans that comprise the S&P/LSTA 100 Index were more responsive to market conditions, outperforming the broader Index in October with a 0.61% return after underperforming in September with a 0.96% decline.

October’s small gain pushed the year-to-date return for the S&P/LSTA Index to 2.38%, while the 100 Index edged up to 2.09%. By comparison, the respective figures for the same period in 2013 were 4.28% and 4.01%. – Steve Miller

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

  • Annual loan returns
  • Secondary loan market prices
  • Loan Index returns
  • Loan outstandings
  • CLO issuance
  • Returns by asset class
  • Loan forward calendar


Follow Steve on twitter for leveraged finance insight and market talk.


Outflows from leveraged loan funds moderate in 16th consecutive withdrawal


Cash outflows from bank loan funds moderated to $428 million during the week ended Oct. 29, from a $1.7 billion outflow in the previous week, according to Lipper. The latest reading represents a 16th consecutive weekly withdrawal and the 27th outflow in the past 29 weeks, for a net redemption of $17.1 billion over that span.

The current reading reflects mutual fund outflows of $418 million, plus a $10 million outflow from exchange-traded funds. The influence of ETFs had been running a bit hotter, at 6% of the outflow last week and 8% the week prior.

The trailing-four-week average is negative $964 million, versus negative $1.2 billion last week. Recall that last week’s observation was the third largest outflow on record and the highest since $1.3 billion in the week ended Aug. 31, 2011.

The year-to-date fund-flow reading pushes deeper into negative territory, at roughly $10.1 billion, and it’s essentially all mutual funds, with ETFs technically positive $23 million for the year. In the comparable year-ago period, inflows totaled $47.3 billion, with 11% tied to ETFs, or $5.1 billion.

The change due to market conditions was positive $217 million, versus total assets of $96.7 billion at the end of the observation period, for roughly a 0.2% gain. The ETF segment comprises $7.4 billion of the total, or approximately 8%. – Matt Fuller

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



Red October: Second-liens suffer in rough month for leveraged loan market

Second-lien chart 1REV

It’s no great surprise, but second-lien prices have fallen further than first-lien prices during the loan market’s October setback. Indeed, the average bid of first-lien paper in the S&P/LSTA Leveraged Loan Index has dropped 0.34 points, to 97.87 on Oct. 24, from 98.21 on Sept. 30. Over the same period, the average second-lien bid has slumped 1.42 points, to 97.86, from 99.28.

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

  • Monthly returns
  • Average Spread to maturity for leveraged loans
  • Averaged new-issue yield to maturity
  • Second-lien volume

– Steve Miller

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