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Investors Pour $303M into US Leveraged Loan Funds

U.S. leveraged loan funds had a net inflow of $303 million in the week ended May 11, according to Lipper. This is the second inflow after a five-week outflow streak totaling $693 million, and it’s the largest one-week inflow in just over a year, since the week ended April 15, 2015.

US leveraged loan fund flowsTake note, however, that today’s reading is hugely ETF-related, at 85% of the inflow. While last week’s was inverse, with outflows of $42 million from mutual funds filled back in by inflows of $126 million to the exchange-traded fund market, there has been a net inflow dominated by ETFs since the week ended March 23 when the $126 million was 95% related to ETFs.

Whatever that might say about fast money, hedging strategies, and other market-timing efforts, this past week’s net inflow takes the trailing-four-week average into the black for the first time in six weeks, at positive $55 million, from negative $254 million last week and negative $126 million two weeks ago.

Year-to-date outflows from leveraged loan funds shrank a bit, to $5 billion, with an inverse of negative $5.2 billion mutual fund against positive $180 million ETF. A year ago at this juncture, it was similarly mostly mutual fund outflows, at $3.3 billion, versus a small inflow of $93 million to ETFs, for a net negative reading of approximately $3.2 billion.

The change due to market conditions this past week was essentially nothing, at positive $12 million against total assets, which were $61.2 billion at the end of the observation period. ETFs represented about 10% of the total, at $5.9 billion. — Matt Fuller

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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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Leveraged Loan Price-Flexes Change Course in Europe as Market Strengthens

European leveraged loan price flex

The European leveraged loan market outlook brightened in April, thanks in part to a combination of an uptick in loan repayments and continued CLO issuance, both of which contribute to increased investor demand.

These influences come at a time when primary loan issuance also is improving, though not enough to overwhelm buyside appetite, according to LCD, an offering of S&P Global Market Intelligence.

One example of just how much sentiment has turned: Price-flexes, where the interest rate or discount on a proposed loan is changed during syndication, due to investor demand – reversed course in April, vastly favoring issuers (pricing was lowered during marketing).

In March, in contrast, it clearly was an investors’ market.

You can read more about how price-flexes work here, in LCD’s free Loan Primer Almanac.

This chart was taken from LCD’s monthly European Leveraged Loan Technicals analysis, by Ruth McGavin. It also details

  • Change in loan outstandings vs inflows/outflows
  • Monthly loan repayments
  • Amount of par loans outstanding
  • Loan forward calendar
  • Loan yields

 

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Leveraged Loans: Herbert Park CLO amends transaction as to be Volcker Compliant

Noteholders of GSO/Blackstone’s Herbert Park CLO have been advised that the issuer has amended the transaction documents to enable it to comply with Volcker, by allowing the rated notes to be held in any one of three sub-classes; Collateral Manager (CM) Voting Notes, which will have voting rights with respect to manager removal and replacement, CM Non-Voting Notes, and CM Exchangeable Non-Voting Notes, which will not include voting rights.

The latter class of notes is also exchangeable into CM Voting notes or CM Non-Voting notes. The changes were effective as of May 9.

This follows a similar Volcker-related amendment to Richmond Park CLO.

Both Herbert Park and Richmond Park priced in 2013 ahead of the Volcker Rule coming into effect in 2014.

Last year, ICG sought to Volckerize two of its European CLOs—St. Paul’s II and III—via amendments, while Carlyle amended the AAA tranche on CGMSE 2013-1 CLO and Cairn Volckerized Cairn CLO III via refinancing exercises. — 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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With Atlas Iron, Leveraged Loan Default Rate Inches to 1.72%

The default rate of the S&P/LSTA Leveraged Loan Index increased to 1.72% by principal amount after S&P Global Ratings yesterday lowered its rating on Atlas Iron’s term loan to D.

This is up from 1.69% following Fairway Group Holdings’ Chapter 11 filing earlier this month.

By number of issuers, the rate is 2.02%, up from 1.93% at the end of April.

S&P Global Ratings today lowered Atlas Iron’s corporate credit rating to Selective Default (SD) from CC, and its rating on the company’s senior secured debt to D, after the Australian iron ore miner announced it had completed its “scheme of arrangement” to exchange $135 million of its $267 million term loan B for more than 6 billion of fully paid ordinary shares and more than 4 billion of options. As reported, the restructuring deal, announced in December 2015, also extends the maturity of the term loan to April 2021, from December 2017.

S&P Global Ratings views the court-approved scheme of arrangement as a distressed debt exchange, as creditors received less than what was promised on the original TLB, and therefore equivalent to a de facto default.

Atlas Iron is the 13th issuer to default this year, versus 10 defaults in all of 2015.

The slew of defaults in recent months has somewhat deflated LCD’s shadow default rate—a measure of performing S&P/LSTA Index issuers that have (1) missed a bond payment, (2) missed a loan payment but remain in the cure period, (3) entered a forbearance agreement, (4) received a D rating on at least one debt facility, (5) publicly stated they are contemplating bankruptcy or an out-of-court restructuring, or (6) received a going-concern qualification from their auditors. The rate now stands at $2.47 billion, or 0.30% of performing loans outstanding, compared to 0.31% at the end of April. The issuers on the shadow list are: Transtar, Seventy Seven Operating, and R.H. Donnelley/SuperMedia. — Rachelle Kakouris

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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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European Leveraged Loan/High Yield Bond Issuance Down Sharply from 2015

european leveraged finance volume

European leveraged finance issuance – high yield bonds and leveraged loans – so far this year is down roughly 50% from the same period a year ago, according to LCD, an offering of S&P Global Market Intelligence.

As in the U.S., the European speculative-grade market has seen this biggest change. So far high yield has seen €13.8 billion of issuance, down severely from the €38 billion at this point in 2015. European leveraged loan issuance, at €20 billion, is down from the €26 billion at this point last year. – Staff reports

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This story chart is part LCD’s weekly European High Yield analysis, available 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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After 5 Weeks of Withdrawals, US Leveraged Loan Funds See $84M Cash Inflow

us loan fund flowsU.S. leveraged loan funds had a net inflow of $84 million in the week ended May 4, according to Lipper. This is the first inflow after a five-week outflow streak totaling $693 million.

Take note, however, that today’s reading is inverse, with outflows of $42 million from mutual funds filled back in by inflows of $126 million to the exchange-traded fund market. Similarly, last week’s net $75 million outflow was based on outflows of $98 million from mutual funds and inflows of $23 million to ETFs.

Year-to-date outflows from leveraged loan funds are essentially steady at $5.3 billion, with just 1% ETF-related. A year ago at this juncture, it was also mostly all mutual fund outflows, at $3.4 billion, versus a small inflow of $141 million to ETFs, for a net negative reading of $3.6 billion.

The change due to market conditions this past week was barely positive, at 0.4%, with a gain of $250 million against total assets, which were $60.9 billion at the end of the observation period. ETFs represented about 9% of the total, at $5.4 billion. — Matt Fuller

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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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European Leveraged Loans Return 1.18% in April, Following Strong March

european leveraged loan returns

Leveraged loans tracked by the S&P European Leveraged Loan Index (ELLI) gained 1.18% (excluding currency) in April, the second-highest return since January 2013, after March’s 1.7% gain, according to LCD, an offering of S&P Global Market Intelligence.

The market-value component of the return was up 0.79% in April, the second-consecutive positive reading after a seven-month string of losses.

April’s gains put the Index further into the black — up 1.77% in the year to April 30 — but it is still lagging last year, when the ELLI gained 2.95% in the first four months (excluding currency). The difference stems from the market-value component, which has advanced by 0.19% so far in 2016, compared to 1.41% in the same period last year. – Staff reports

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S&P: European High Yield Corporate Default Rate Rises to 1.6% in April

European high yield default rateWith two defaults during the month, the European speculative grade corporate default rate rose to 1.6% in April, according to S&P Global.

Defaulting: Norway forest/paper products concern Norske Skog and UK oil company Edcon Holdings.

The full report on April defaults – including xls files detailing 2016 activity, corporate issuance, and European bond ratings actions – is available to S&P Global Credit Portal subscribers here. – Tim Cross

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European Leveraged Loan Issuance Surges to €6.4B as Refinancings Emerge

european leveraged loan issuance

European new-issue loan volume rose to €6.4 billion in April, making it the second-busiest month so far in 2016, behind January’s buyout-fuelled tally of €8.6 billion. Half of April’s total — €3.2 billion — came from refinancings, as market conditions warmed, allowing a greater range of activity than was seen in the M&A-heavy first quarter.

In April, borrowers raised the highest volume of new loans for refinancing purposes since March 2015, thanks to large transactions such as Inovyn and Numericable. In all, seven borrowers tapped the loan market to refinance existing senior debt, high-yield bonds, or a combination of various debt structures. – Staff reports

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US Leveraged Loan Default Rate Slips to 1.69% in April

US leveraged loan default rate

Despite a fresh default from coal concern Peabody Energy, the default rate of the S&P/LSTA Leveraged Loan Index slipped slightly in April, to 1.69% by principal amount, versus 1.75% at the end of March. By number of issuers, the rate dipped to 1.93%, from 2.03% at the end of March.

Though Peabody’s default was sizable at just shy of $1.2 billion, it was canceled out as two April 2015 defaults—Walter Energy and Sabine Oil & Gas—fell from the rolling-12-month calculation.

With only one Index default in April—versus four in March—it is the lowest reported by number for any month thus far in 2016. It brings the 2016 tally to 11, versus 10 defaults in all of 2015. What’s more, this is the most defaults by number for the first four months of a year since 2010.

While the consensus among market participants is that the credit cycle is in the later innings, as the rising number of defaults implies, thus far the damage has been fairly contained among commodity-related credits. April’s activity continued that trend. – Kerry Kantin

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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.