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Leveraged Loan, High Yield Bond Markets Proceed Cautiously after Brexit Vote

leveraged finance issuance

The U.S. leveraged finance segment was quiet last week as market players worked around the July 4 holiday and began to navigate the post-Brexit vote landscape.

After posting no issuance the previous week there was $1.3 billion in high yield bond deals last week, most notably via Transocean Offshore, a fallen-angel issuer which launched a $1.25 billion offering to refinancing existing debt.

Year to date, U.S. high yield bond issuance totals $120 billion, down from $186 billion at this point in 2015, according to LCD, an offering of S&P Global Market Intelligence.

Despite no deal flow, there was news in the market. Institutional investors poured a hefty $1.8 billion into high yield funds last week, ending three weeks of withdrawals totaling $4.2 billion, according to Lipper.

The leveraged loan space was more active, though still unimpressive, with $3.4 billion in deals last week, after posting a scant $800 million the previous week. Of note, Realogy, the parent company of Century 21, ERA, Coldwell Banker, and Sotheby’s, set a $1.1 billion leveraged loan, also to refinance debt.

Year to date, U.S. leveraged loan issuance totals $216 billion, down some 10% from this point last year. – Tim Cross

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This story first appeared on www.lcdcomps.com, an offering of S&P Global Market Intelligence. LCD’s subscription site offers 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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M&A, LBO Leveraged Loan Issuance Remains in Check During 2nd Quarter

M&A loan volume US

M&A leveraged loan volume declined slightly in 2016’s second quarter, to $56.4 billion from $65.3 billion in the previous three months, according to LCD.

In general, M&A activity has been lackluster, as high equity prices, stiff competition for deals, and regulatory constraints keep a lid on activity.

As for LBOs, private equity shops maintained the unspectacular pace established in the first quarter of the year, logging $18.1 billion in leveraged loan buyout loan volume during the second quarter. – Staff reports

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This story is part of analysis, written by Kerry Kantin, which first appeared on www.lcdcomps.com, an offering of S&P Global Market Intelligence. LCD’s subscription site offers 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 Hefty Withdrawal Last Week, Outflows to U.S. Leveraged Loan Funds Ease

US loan fund flows

U.S. leveraged loan funds recorded a net outflow of $18 million in the week ended July 6, according to the Lipper weekly reporters only.

Today’s reading reflects an outflow of $93 million from mutual funds swamped by an inflow of $75 million to ETFs.

Year-to-date outflows from leveraged loan funds now total $5.7 billion.

The change due to market conditions this past week was positive $325 million on total assets of $59 billion at the end of the observation period. ETFs represent about 10% of the total, at $6.3 billion. — Matt Fuller

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This story first appeared on www.lcdcomps.com, an offering of S&P Global Market Intelligence. LCD’s subscription site offers 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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Fed Extends ‘Volcker Rule’ Deadline, Giving CLO Market Breathing Room

The Board of Governors of the Federal Reserve has extended the deadline for banks to comply with the Volcker Rule for one additional year until July 21, 2017.

quarterly CLO issuance

CLOs under the final Dodd-Frank rules in December 2013 were classified as “covered funds” if they include bonds in their collateral pool. Depository institutions or other companies affiliated with an insured depository institution are prohibited from trading non-compliant CLOs in their own book or retaining them.

The Federal Reserve Board in December 2014 previously extended the compliance deadline to July 21, 2016 and at that time expressed its openness to a further extension, which was formally announced yesterday.

The additional extensions have been important for both banks and CLO managers as banks have not been forced to sell non-compliant CLOs while also working with CLO managers to issue compliant structures since the rule was announced to minimize the impact, the LSTA said in response to the announcement.

The Federal Reserve Board reached its conclusion to allow for the extension after also consulting with the Office of Comptroller of the Currency (OCC), Federal Deposit Insurance Corporation (FDIC), Securities and Exchange Commission (SEC), and Commodity Futures Trading Commission (CFTC). — Andrew Park

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This story first appeared on www.lcdcomps.com, an offering of S&P Global Market Intelligence. LCD’s subscription site offers 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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Post-1.0, Pre-Brexit: European CLO Issuance Hits Record €4.56B in 2Q

European CLO issuance

CLO issuance in Europe rose to €4.56 billion in the second quarter from €2.64 billion in the first, marking the highest such volume in the European ‘2.0’ market’s brief three-year history, according to LCD, an offering of S&P Global Market Intelligence.

The improved market sentiment going into the second quarter — and the strong motivation among arrangers to de-risk from the warehouses amassing on their balance sheets via the CLO take out — helped fuel issuance from March onward.

But the key factor was the abundance of triple-A appetite, much of it flowing out of Asia, which intensified the competition for senior paper and helped drive senior liability spreads down to E+128, from E+150 at the start of the year.

But if AAA demand was abundant, loan supply was less so, and this was cited as a key concern by managers during the past quarter. Managers also had to handle increasing opportunistic transactions, although the Brexit vote has put an end to the flow of refinancings for now.

June had racked up a healthy volume of €1.64 billion, and was set to go higher still until the Brexit vote brought supply to a temporary halt, leaving year-to-date issuance at €7.21 billion. – Sarah Husband

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This story first appeared on www.lcdcomps.com, an offering of S&P Global Market Intelligence. LCD’s subscription site offers 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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Smacked by Brexit Vote, European Leveraged Loans Retreat in June

european leveraged loan returns

Leveraged loans tracked by the S&P European Leveraged Loan Index (ELLI) lost 0.6% in June — reflecting the market’s reaction to the U.K.’s vote to leave the European Union — placing the Index into the red for the first time since February.

Putting June’s loss into context, the Index declined more severely following the global equities crash in February — when it lost 1.22% — but less severely during the Greek debt crisis in June 2015, when it lost 0.31%.

In the U.S., leveraged loans managed to gain 0.02% in June, despite the Brexit vote.

Year to date, European leveraged loans have gained 2.13%, vs 4.51% in the U.S. – Staff reports

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This story first appeared on www.lcdcomps.com, an offering of S&P Global Market Intelligence. LCD’s subscription site offers 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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US Leveraged Loans Eke Out Gain in June; 1H Return: 4.51%

US leveraged loan returns

After some ups and downs, the S&P/LSTA Leveraged Loan Index managed to eke out a positive return in June, gaining 0.02%. The largest loans, which compose the S&P/LSTA Leveraged Loan 100 Index, were down slightly for the month, returning negative 0.15%.

In the year to date, index returns are 4.51%, little changed from the end of May but up significantly from 2.83% during the same period last year. The LL100 has returned 5.36% in the year to date, versus 1.76% through the first half of 2015. –Kerry Kantin

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This story first appeared on www.lcdcomps.com, an offering of S&P Global Market Intelligence. LCD’s subscription site offers 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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Download LCD’s Distressed Debt Weekly – Free!

LCD’s Distressed Weekly offers comprehensive news, analysis, data, and market calendars covering the distressed leveraged loan and high yield bond segments. This encompasses debt that’s trading at steep discounts or issuers which have recently underwent credit defaults or downgrades into junk territory.

Here’s some of what’s you’ll see in each Distressed Weekly.

  • Full distressed market news stories from LCD News
  • Weekly Market Wrap-up
  • Recent debtor-in possession loans
  • Recent loan covenant amendments
  • Bankruptcy hearing deadlines
  • Loan, high yield bond returns
  • YTD leveraged loan defaults
  • Chapter 11 Exit Pipeline
  • LCD’s Restructuring Watchlist
  • Upcoming loan maturities

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Leveraged Loans: Accunia Prices 1st European CLO Since Brexit Vote

Deutsche Bank has priced an upsized €421.23 million CLO for Nordic asset management firm Accunia Credit Management, according to market sources. This is the first transaction to price since the Brexit vote last month, and Accunia is based in Denmark. The transaction, which is the first for the manager was upsized from €360.49 million.

The collateralized loan obligation transaction is structured as follows:

Accunia CLO 2016-07-05

Of note, PGIM (Pramerica) is appointed as designated successor manager.

The settlement date is Aug. 4, 2016, and the transaction has a two-year non-call period, a four-year reinvestment period and a 13-year legal final maturity.

All the liabilities are set with 0% Euribor floors. The vehicle is currently roughly 44% ramped, with a three-month ramp-up period from closing.

Accunia intends to comply with European risk retention via a vertical strip as sponsor, while for Volcker, the transaction documentation includes language around manager-replacement rights, with separate voting, non-voting, and non-voting exchangeable tranches.

Including Accunia’s transaction, European CLO issuance rises to €7.63 billion from 19 CLOs, according to LCD, an offering of S&P Global Market Intelligence. This is the first CLO to price in July. — Sarah Husband

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This story first appeared on www.lcdcomps.com, an offering of S&P Global Market Intelligence. LCD’s subscription site offers 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 Brexit, 4th of July, US High Yield Bond/Leveraged Loan Marts Take Week Off

US leveraged finance issuance

There was practically zero new issuance in the U.S. leveraged loan and high yield bond markets last week, as all eyes were on the post-Brexit vote fallout and as market players took off early in anticipation of the Independence Day holiday.

Year to date, U.S. leveraged loan issuance stands at $209.6 billion, down 10% from the same period in 2015. High yield bond issuance totals $118.9 billion, down a hefty 36% from last year.

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This story first appeared on www.lcdcomps.com, an offering of S&P Global Market Intelligence. LCD’s subscription site offers complete news, analysis and data covering the global leveraged loan and high yield bond markets. You can learn more about LCD here.