The average bid of LCD’s flow-name composite fell 11 bps in today’s reading to 98.78% of par, from 98.89 on Tuesday, Aug. 11.
Among the 15 names in the sample, eight declined, three advanced, and four were unchanged from the prior reading. Avaya’s B-7 term loan due 2020 (L+525, 1% floor) was once again the biggest mover in either direction, falling another point in today’s reading to an 88.5 bid, extending losses on its 3Q results released last week amid the volatile market conditions.
After losses deepened Wednesday morning, loans began clawing back losses yesterday afternoon, with the recovery continuing today, as some buyers stepped in to capitalize on the recent weakness.
Overall, the market has had a slightly negative bias in recent sessions with loan mutual funds recording outflows and CLO issuance slowing, while traders also say that some high-yield and crossover accounts have been selling loans amid the recent downdraft in high-yield. Lipper last week reported an outflow of $594 million, the largest in 26 weeks, and the market appears poised for an even more considerable outflow this week. LCD data project an outflow, per the Lipper sample of weekly reporters, of $775 million for the five days ended Aug. 12.
With prices well off recent highs – the percentage of performing Index loans bid at par or higher fell to 23.1% as of yesterday’s close, from 40.6% a week earlier and 54% three weeks ago – some accounts are viewing the recent weakness as a buying opportunity, and there’s speculation that today’s relative bargains could revive the lackluster CLO issuance as of late. Regardless, buyers began coming out of the woodwork.
Nevertheless, this recent secondary weakness has bled into the primary market. While there’s ample demand to get deals done, issuers and arrangers can’t be as aggressive as they might have been a week ago, especially with a few recently issued deals that cleared tight relative to their ratings profiles bid below their issue prices, such as Pharmaceutical Product Development and HD Supply.
With the average loan bid tumbling 11 bps, the average spread to maturity gained two basis points, to L+415.
By ratings, here’s how bids and the discounted spreads stand:
- 99.63/L+367 to a four-year call for the nine flow names rated B+ or higher by S&P or Moody’s; STM in this category is L+365.
- 97.52/L+499 for the six loans rated B or lower by one of the agencies; STM in this category is L+474.
Loans vs. bonds
The average bid of LCD’s flow-name high-yield bonds dropped 40 bps, to 97.47% of par, yielding 7.48%, from 97.87 on Aug 11. The gap between the bond yield and discounted loan yield to maturity stands at 327 bps. – Staff reports
- August: The average flow-name loan fell 87 bps from the final July reading of 99.65.
- Year to date: The average flow-name loan rose 186 bps from the final 2014 reading of 96.92.
- Bids decrease: The average bid of the 15 flow names slipped 11 bps, to 98.78% of par.
- Bid/ask spread expand: The average bid/ask spread grew, to 38 bps.
- Spreads higher: The average spread to maturity – based on axe levels and stated amortization schedules – inched up two basis points, to L+415.