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CLO roundup: September gets off to slow start in both US, Europe

It’s been a tentative post-summer return for the CLO market with just three new issue CLOs pricing so far in the U.S. this month, and the Dryden XXVII tap providing Europe’s only new issue activity to date. Still, a number of transactions are expected to price this week, ahead of the IMN’s ABS East Conference in Miami next week (Sept. 21-23).

Global CLO issuance in 2014 stands at $97.71 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

 

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Leveraged loan funds see outflow for 9th straight week, modest ETF influence

Cash outflows from bank loan funds declined slightly to $342 million during the week ended Sept. 10, versus outflows of $435 million last week and $297 million two weeks ago, according to Lipper. The influence of bank-loan ETFs on this week’s number was 21%, as Lipper recorded a $70 million outflow from ETFs. This compares to a $20 million inflow into ETFs last week.

There now have been 20 weeks of outflows over the past 22 weeks, for a total outflow of $10.9 billion over that span, which follows a record-shattering 95-week inflow streak that totaled $66.7 billion.

The trailing four-week average narrows to negative $404 million per week, from negative $490 million last week. This measure remains below the recent peak of negative $858 million from the week ended June 11.

The year-to-date fund-flow reading pushes deeper into negative territory, at $3.9 billion, based on a net withdrawal of $4.3 billion from mutual funds against a net inflow of $459 million to ETFs. In the comparable year-ago period, inflows totaled $42 billion, with 11% tied to ETFs.

The change due to market conditions was a negative $308 million, versus total assets of $103.7 billion at the end of the observation period. The ETF segment comprises $8 billion of the total, or approximately 8%. – Joy Ferguson

LoanFundFlow_9.10

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Retail reticence: Leveraged loan fund assets see biggest drop since 2011

loan mutual funds AUM

 

The drag on demand from the retail sector in August continues to take its toll. During the month, investors withdrew $3 billion from loan mutual funds that report weekly to Lipper, versus $1.7 billion in July. That figure suggests that when all funds publish their numbers, AUM for the category will fall by $4.3 billion in August – the largest decline since 2011 – after a drop of $2.2 billion in July. – Steve Miller

The chart is part of a loan market technicals analysis, available to LCD News subscribers, that also details

  • change in loan outstandings
  • loan index outstandings
  • high yield bond fund flows
  • leveraged loan yields
  • repricing volume
  • covenant-lite loan issuance
  • CLO issuance

Follow Steve on Twitter.

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CLO roundup: Pipelines point to busy year-end for both US, Europe

After a busy summer, with both the U.S. and European CLO markets churning out new transactions in August, there is every indication that CLO issuance will remain strong all the way through to year-end.

Global CLO issuance in 2014 has now risen to $96.64 billion, according to LCD.

The U.S. remains the main driver of this total, printing $10.68 billion of volume from 20 deals in August, versus $13.39 billion from 23 deals in July and $13.78 billion in June, according to LCD. Note that refinancings are not included in these numbers.

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

  • Global CLO volume (Jun 13-Sep 5)
  • US arbitrage CLO issuance and institutional loan volume
  • European arbitrage CLO issuance and institutional loan volume
  • Deal pipeline

– Sarah Husband

 

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U.S. Leveraged loans return 0.15% in August after negative July

leveraged loan returns

The S&P/LSTA Leveraged Loan Index avoided its second straight month of red ink in August thanks to a late-month rally that came amid improving technical conditions in the loan market and more effusive investor sentiment across the broader capital markets. Thus, after the month’s return fell to negative 0.27% by Aug. 14, rising prices spurred the Index to a 0.15% gain by month-end, versus a 0.03% loss in July.

This analysis is part of an LCD News story, available to subscribers, that also details leveraged loan secondary prices, loan returns by rating, fund flows, outstandings, CLO issuance, returns by asset class, and big movers in the secondary market.

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Leveraged loans: US CLO volume tops 2013 total as pipelines remain strong

CLO chart 1 2014-09-03(2)

The U.S. CLO market kept on printing new deals through the month of August, helping push this year’s total volume past that recorded for the whole of 2013 and ever closer to the record high of $97.01 billion recorded in 2006.

At $85.42 billion from 158 deals in the year to date, according to LCD, U.S. CLO supply has easily surpassed the $82.61 billion notched from last year and is closing in on the $88.94 billion issued in 2007. – Sarah Husband

For more CLO news and market talk follow Sarah on Twitter: @husbandLCD

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Cool summer: Loan break prices sink to 2-year low in August

With the loan market getting off to a rocky start in August, the average price at which first-lien institutional loans broke for trading slumped to a two-year low of 99.65% of par during the month, from 99.91 in July.

The average issue price was also materially lower last month, sliding to 99.02 – its lowest monthly level since December 2012 – from 99.23 in July.

LCD subscribers can click here to access full story, analysis, and the following chart:

  • Averaged new-issue yield to maturity for leveraged loans


– Kerry Kantin

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Leveraged loans return 0.15% in August; YTD return is 2.73%

Through August, the S&P/LSTA Index is up 2.73%, versus 3.28% during the first eight months of 2013. Despite August’s market-beating gain, the Loan 100 lags in the year to date, at 2.46%, versus 2.99% during the same period last year.

Complete story, analysis, and the following charts are available to LCD subscribers, please click here.

  • Annual returns
  • Average bid of the S&P/LSTA Index
  • Returns by type of debt
  • Weekly loan fund flows
  • Par amount outstanding of the S&P/LSTA Index
  • CLO issuance
  • Average new-issue first-lien spreads
  • Repricing volume by month
  • Institutional M&A forward calendar


– Steve Miller

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

 

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Leveraged loan market observations, California edition: Demand, bubbles, record CLOs

On my annual August West Coast swing I was privileged to have many informative discussions with our friends on the buy-side — including at Los Angeles’ Chavez Ravine, while watching Clayton Kershaw lead the Dodgers to a win over the Angles. What follows is a summary of the insights I was able to glean, which I pass along with as little editorializing as possible.

The buy-side is in the drivers seat
Clearly, managers have adjusted to today’s new normal, in which they are able to control pricing discussions. The reasons are well known. To summarize: Hot money is out of the asset class, for now. Retail flows are negative. High yield accounts are selling. And institutional investors have pulled in their horns for the same reason as have retail investors – a combination of bad press, duration fatigue and the overall risk-off posture of the market.

Bubble trouble?
There’s a broad consensus that terms and conditions are stretched, and debt multiples are pushing into an uncomfortable zone. Will there be another default spike in the years to come, as a result? Of course. Credit cycles have existed since the ancient Sumer civilization supposedly invented debt 3,500 years before Christ.

Given the solid economic outlook, however, an organic catalyst seems like a remote possibility in the near term. That does not dismiss an exogenous shock that sinks the global economy into recession (there are plenty of flash points around today to make such a risk more than idle). But even in that case most issuers can eat out of their own refrigerator, at least for a time, as a result of wide coverage ratios.

Underwriting calendar/CLO warehouses
One big way managers observe that the current period is far different than 2007 is a lack of overhang. Naturally, there is a wide array of CLO warehousing, but warehouse lines are far less vulnerable — from a bank’s perspective — because of large first-loss positions required of equity investors. As well, the underwriting calendar today of roughly $40 billion in M&A loans is a fraction of the roughly $350 billion that loomed over the market – and banks’ liquidity – when the fecal matter hit the rotor device in 2007.

CLOs
A record year of $100 billion is in the book already, managers say, based on the year-to-Aug. 11  total of roughly $79 billion. The number could go a lot higher — perhaps upwards of $125 billion — given managers’ ability to source sub-par paper in the secondary, and the decent flow of new-issue on tap.

Retail flow
This will remain mostly negative until there’s some meaningful pick-up in rates. That said, 2015 could be a huge year for inflows if the Fed does, as expected, finally start raising rates.

Institutional mandates
Pension funds and other institutional investors have put the brakes on credit, and what mandates are in process are of the “go-anywhere” variety, that allows managers’ discretion to invest across products and regions.

To sum it up, I’d say for CLO managers these seem to be the best of times. They would not like to see further deterioration that would scare equity investors from the field. But the current state of play is highly conducive to ramping and printing deals (as the volume numbers attest). As for retail managers and those hunting for institutional mandates, it is not the worst of times, by a long shot. But it could be better.