European new-issue loan volume fell to €3.5 billion in April from €9.1 billion in March, staying on the same up-and-down pattern seen so far in 2015. The trend also looked similar by number of deals – only 12 transactions launched in April, down from the intra-year high of 21 in the prior month.
For the first time since December 2012, none of the new loans launching in April funded a buyout. The sole buyout tracked by LCD in April was financed via the high-yield bond market, namely €400 million of senior secured notes backing the buyout of Senvion by Centerbridge.
In the institutional market, the mismatch between supply and demand persisted as issuance declined to just €2.5 billion in April, less than half the €6.1 billion tracked in the prior month. Meanwhile inflows from repayments ballooned to nearly €9 billion in the month to April 24, as tracked by the S&P European Leveraged Loan Index (ELLI), pushing the Index to the lowest level since 2006 $$.
This chart is taken from a longer piece of analyis, available to LCD News subscribers here, that also details
- European cov-lite volume
- European sponsored loan volume
- Leverage on European loans
- European borrower source of funding
Bank loan mutual funds and ETFs reported a $55 million outflow for the week ending April 29, back in the red after a $35 million inflow last week, which itself was the second consecutive inflow following a seven-week outflow streak.
The week’s number is split between a $32 million outflow from mutual funds and a $21 million outflow from the exchange-traded-fund group. Recall this week’s ETF outflow follows three consecutive weeks of ETF inflows totaling roughly $376 million.
With today’s small net outflow, the trailing four-week reading remains barely in the black, at positive $6 million per week, from positive $29 million last week, and negative $52 million two weeks ago. Recall that the negative four-week observation 17 weeks ago, at $1.3 billion, was the deepest in roughly 3.5 years, or since the week ended Aug. 31, 2011.
The year-to-date outflow is now $3.4 billion, with negative 4% tied to ETFs, versus an inflow of $6 billion at this point last year, with positive 16% tied to ETFs.
In today’s report, the change due to market conditions was a positive $45 million, which is negligible against total assets, which were $93.9 billion at the end of the observation period. The ETF segment comprises $7.1 billion of the total, or approximately 8% of the sum. – Joy Ferguson
Bank loan mutual funds and ETFs reported a $530 million inflow for the week ending April 15, the first inflow in eight weeks, and the largest inflow in 58 weeks. This compares to an outflow of $4 million in the prior week, according to Lipper.
The week’s inflow is a combination of a $333 inflow to mutual funds along with a $197 million inflow to exchange-traded funds, so ETFs represent 37% of the total. This is the second positive reading on the ETF segment in six weeks, with the four previous representing net outflows from ETFs.
There has been a total of $777 million of inflows recorded over the last 54 weeks from just four of the individual weeks, versus $28.3 billion of outflows. With today’s inflow, the year-to-date outflow deepens to $3.3 billion, with negative 3% tied to ETFs, versus an inflow of $6.7 billion at this point last year, with positive 16% tied to ETFs.
With a strong infusion of fresh cash, the trailing four-week average was moderates to just negative $52 million, from negative $241 million last week, and negative $248 million two weeks ago. Recall that the negative four-week observation 15 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 a positive $177.9 million, which represents roughly a 0.2% gain against total assets, which were $93.8 billion at the end of the observation period. The ETF segment comprises $7 billion of the total, or approximately 7% of the sum. – Joy Ferguson
In the first quarter, the average coverage ratios of newly minted leveraged buyouts fell to post-credit-crisis lows – while remaining well above the mid-2000s tights. However, while the averages have tightened, debt service cushions for most deals remain wide of the razor-thin levels of 2006/07 that led to the record high default rates of the credit crunch – Steve Miller
This analysis is part of a longer LCD News story, available to subscribers here, that also details
- Distribution of cash flow coverage ratios
- Loan default experience, by cash flow coverage
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In one of the more profound shifts in leveraged loan covenant protection, the percentage of leveraged loans that waive excess-cash-flow recapture reached an all-time high of 42% in the first quarter of 2015.
This is, managers say, a relevant data point. After all, a decade ago most loans required that 75% of excess cash flow be used to prepay the debt. For these loans, a trigger that reduced the level to 50% was common.
In recent years, however, a 50% sweep has become market standard. – Steve Miller
This chart is taken from an LCD News story, available to subscribers here, that also details
- Covenant-lite loan outstandings
- Distribution of loans by cash-flow sweep
- Distribution by number of financial covenants
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In March, for the second month running, there were no defaults among S&P/LSTA Index loans. As a result, the default rate by amount eased to 3.79%, from 3.92%.
Looking ahead, loan managers remain constructive on the near-term default outlook, according to LCD’s latest quarterly buyside survey conducted in early March. On average, participants expect the loan default rate to end 2015 at 1.63%, before ticking up to 1.81% by March 2016. By comparison, the historical average rate by amount is 3.23%. – Steve Miller
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This story is taken from LCD’s full quarter-end default analysis, available to subscribers here.
Spurred by more-dovish-than-anticipated comments from Fed Chair Janet Yellen, the 10-year Treasury rate fell six basis points, to 1.94%, on March 31, from 2.00% a month earlier. As a result, loans underperformed 10-year Treasuries in March, while running even with high-grade bonds. With risk assets under pressure, however, loan returns ran ahead of equities and high-yield.
For the year-to-March, likewise, the 10-year rate is down 23 bps from 2014’s final read of 2.17% and, as a result, fixed-income products are running ahead of loans and equities. – Steve Miller
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The U.S. CLO market is wrapping up its busiest month ever, with more than $14 billion in issuance during March, according to S&P Capital IQ/LCD. March tops off a record first quarter, which has seen $28.62 billion of activity (so far). – Sarah Husband
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Citigroup today priced an $856.75 million CLO for Guggenheim Partners Investment Management, which was upsized for a second time, according to sources.
The transaction is structured as follows:
Recall the transaction was initially outlined as $654.55 million, though it had previously been increased to $805.4 million.
The deal has a two-year non-call period, a four-year reinvestment period and a 12-year legal final maturity.
The asset manager yesterday also priced its $558.9 million Kitty Hawk CLO 2015-1 deal via Mitsubishi UFJ Securities, though note this is Guggenheim’s third print in the U.S. this year.
CLO issuance in the year to date now stands at $28.11 billion from 52 deals, according to LCD. March issuance is $13.58 billion from 25 deals. Though there are still a couple more days left in the month, issuance thus far in March is the highest since June 2014, when $13.78 billion of deals priced. – Kerry Kantin
For more on how the CLO markets work check out LCD’s Loan Primer.
Bolstered by a troika of large, well-rated, corporate M&A loans – Dollar Tree ($6.2 billion), Valeant Pharmaceuticals, ($5.15 billion), and Ball Corp. ($3 billion revolver) – new-issue volume has risen in the first quarter, to $80.7 billion, including $53.9 billion of institutional tranches, from a three-year low of $66.6 billion/$43.4 billion over the prior three months.
Still, participants are not exactly breaking out the cigars and champagne. The primary market is off to a flat-footed start versus the liquidity-heavy/regulation-light first quarter of 2014, when arrangers placed $168 billion of new issues, including $129 billion of institutional facilities. In fact, 2015 is off to the slowest start for any year since 2010. – Steve Miller
This analysis is taken from a longer LCD News story, available to subscribers here, that details first-quarter leveraged loan activity in full.
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