Free ETF Analyst Hour Webinar: State of High Yield Bond, Leveraged Loan Markets

The next ETF Analyst Hour Webinar, a series presented by S&P Capital IQ and SNL, will focus on the state of the high yield bond and senior loan markets. This one-hour webinar is slated for tomorrow, Nov. 10, 11:00 a.m. EST.

This free event will feature Todd Rosenbluth, senior director of ETF and mutual fund research at S&P, and LCD’s Rob Polenberg (Rob runs the group that produces much of the analysis you read on LCD News).

Those attending the webinar can access research reports of the ETFs highlighted during the presentation.

There’s more info, and a registration form, here.

We hope to see you online tomorrow.


Ares Corp. details 3Q15 portfolio stats, books $1.5B in new deals

Ares Corp. (NASDAQ: ARCC) booked $1.52 billion in new business during the third quarter, at an average interest rate of 7.8%, the lender detailed in its 10-Q filing yesterday alongside earnings. Exits totaled $1.34 billion, for net new investments of $183 million.

The 7.8% is 20 bps inside second-quarter investments, reflecting the better market conditions that borrowers enjoyed prior to the post-Labor Day correction. Spreads have since widened and should build up the average for fourth-quarter deals. In October, management said it funded $305 million in new investments for the fourth quarter at an average yield of 11.4%, while exiting $152 million at 8%.

First-lien commitments took a 75% share of third-quarter transactions, up from 37%, as ARCC shifted bookings away from the SSLP fund as that joint-venture with GE Capital winds down. Second-liens accounted for 21% of investments, down from 28% in the second quarter.

As of Oct. 29, the lender said it has $630 million in its backlog, which includes transactions that are approved, mandated or have a signed commitment that has been issued and that ARCC believes likely to close. There is an additional $425 million in the pipeline, which includes transactions that are in process, but have no formal mandate or signed commitment.

Portfolio stats
ARCC’s overall portfolio grew to $8.7 billion in assets, from $8.6 billion. The number of investments increased by nine, to 216. Average EBITDA per company is $58.8 million. As of June 30, 66% of the borrowers in ARCC’s portfolio generated less than $55 million of EBITDA.

Petroflow lifted ARCC’s loans on non-accrual status to 2.3% ($195 million) of the portfolio at cost, from 1.7%. Petroflow is one of three companies that ARCC considers true oil-and-gas-related investments, which account for roughly 3% of the portfolio. ARCC’s Petroflow investment is a first-lien position that was originated in July last year prior to the dramatic decline in oil prices. ARCC said it is working with the company and lender group to restructure Petroflow’s balance sheet. The principal investment totals $53.2 million. ARCC booked the 12% paper at a cost of $49.7 million, and the deal is now marked at a fair value of $37.9 million.

BDCs were not excluded from stock market volatility in the third quarter. ARCC’s stock slid to a 14% discount to NAV, from a 2% gap in the previous quarter. The stock closed the third quarter at $14.48, versus a book value of $16.79. The stock has since rebounded, to $15.49, to narrow the discount to 8%. By comparison, the BDC sector as a whole is trading at a roughly 15% discount. — Kelly Thompson


Leveraged Loan Secondary Break Price Hits 4-Year Low

leveraged loan break price

The average price at which first-lien leveraged loans broke into the secondary in October tumbled 1.36 points, to a 49-month low of 98.26% of par, from 99.62 in September.

The sharply lower average break price reflects the steeper discounts on offer last month. The average OID sank 1.56 points, to a four-year low of 97.53, from 99.09 in September. – Steve Miller

Follow Steve on Twitter for leveraged loan news and insight. 

This chart is taken from LCD News’ monthly analysis of leveraged loan market secondary break prices. The full version, which includes a host of other charts/data, is available to subscribers here.


With One October Event (Aveta), Leveraged Loan Default Rate Inches to 1.32%

leveraged loan default rate

Aveta Holdings was October’s lone new U.S. leveraged loan default among S&P/LSTA Index loans. As a result, the lagging default rate increased to a seven-month high of 1.32% by amount, from 1.27% in September, and to a 15-month high of 0.88% by number of loans, from 0.77%.

(In this chart the spike during 2014 is courtesy Energy Future Holdings, the largest leveraged loan default on record).

Still, default rates remain well inside of the historical averages of 3.16% by amount and 2.81% by number. Managers, broadly speaking, expect defaults to remain belo-trend over the next 12 months, even if most believe that the credit cycle is closer to the end than the beginning. (subscriber link) – Steve Miller

Follow Steve on Twitter for leveraged loan news and insight.

This story is taken from LCD News’ monthly outlook on leveraged loan defaults. It details default rates, default ‘candidates’, upcoming loan maturities, lender expectations re rates going forward, and much more. It is available to LCD News subscribers here (non-subscribers can click to find out more about LCD News).


As Risk Appetite Returns, Leveraged Loans Lag High Yield, Equities in October

Equities and high yield returns popped in October as investors piled back into risk assets. The same trend carried high-grade bond returns into the black in October even as the 10-year Treasury yield ticked up to 2.16% from 2.06% at the end of September. As a result, loans outperformed only 10-year Treasuries among the five asset classes LCD tracks here monthly.

This table is part of LCD’s monthly loan return analysis, which is available to LCD News subscribers here. 



European Leveraged Loan Volume Hits 4-Month High of €6.7B

european leveraged loan volume

European new-issue loan volume rose to a four-month high of €6.7 billion in October, finally getting close to the summer levels. Institutional issuance accounted for €4.7 billion – just shy of the €5 billion seen in each of June and July, and a welcome development for investors faced with IPO-related repayments from borrowers such as WorldPay and Intertrust.

October’s volume received a boost from the €1 billion TLB to fund the buyout of Verisure, the £500 million TLB from the cross-border M&A transaction for Concordia Healthcare, and a €500 million term loan to fund the cross-border recapitalization facilities for NumericableSFR. Staff Reports



Middle market loan volume in Oct on pace to set six-year low

Heading into month-end, October volume for middle market loans is on pace to set a six-year low at just $920 million. The last time total issuance for deals with a size of $350 million or less was lower was in February 2009, at $642 million. This will mark the fifth straight month of declining new issue volume. With the slowing pace of issuance, second-half volume now stands at $9 billion, compared to more than $21 billion over the first six months of the year. — Jon Hemingway

New-issue middle-market loan volume (loans of up to $350 million)

MM loan volume Oct 28 2015


Ares Management, Kayne Anderson drop merger plan

Ares Management and Kayne Anderson Capital Advisors have scrapped their plan to merge, according to a statement released today. The firms note that the decision was mutual, and Ares reiterated its conviction in energy sector opportunities with an investment commitment in Kayne.

“While we continue to strongly believe in Kayne and the long-term energy investment opportunity, it became clear this was not the right time to bring together our cultures and business models into a merged public company,” Ares Chairman and CEO Tony Ressler said in the statement.

Ares and certain principals will invest $150 million in Kayne for energy investments, including private equity, private energy income, and energy infrastructure marketable securities funds managed by Kayne. The two firms may also team up on other opportunities, such as jointly managing separately managed accounts and other products, management said.

Recall that under the proposed transaction that was unveiled in July, alternative asset manager Ares would have acquired the energy specialist for total consideration of $2.55 billion. Combined the firms would have $113 billion of assets under management as of March 31. That’s across five groups: tradable credit, direct lending, energy, private equity, and real estate. — Jon Hemingway


Leveraged Loan, High Yield Bond Players Take Pause Amid Choppy Markets

It was a light slate of leveraged finance issuance last week as loan and high yield bond players alike navigate an unsettled market while keeping watch on debt issuers such as Valeant, which helped put the entire pharmaceutical segment under a spotlight.

leveraged loan high yield bond issuance

On the leveraged loan side just four issuers braved the market with deals totaling $2.1 billion, down from a relatively healthy $8.7 billion the previous week. Much of the market is focusing on loans already launched into syndication, with many undergoing ‘price-discovery’, and subsequent changes.

“Few deals made it to the finish line unscathed,” writes LCD’s Chris Donnelly. “Virtually all the action was in clean-up.”

With the unsettled atmosphere – and with continued demand for higher-rated credits – yields on lower-rated loans (those stamped B+ or B by S&P) now are yielding 5.91% in the new-issue market, up from 5.8% the previous week, according to S&P Capital IQ LCD. Higher-rated credits (BB) continue to yield 4.23%.

The leveraged loan price discovery comes as investors continue to take cash out of the asset class. Indeed, U.S. loan funds last week saw their 13th straight withdrawal, totaling $5.6 billion. As well, assets under management at U.S. loan funds recently hit a 28-month low.

Year to date, U.S. leveraged loan volume totals $369 billion, compared to $476 billion at this point in 2014.

The choppy high yield bond market continues to plod along with a thin $1.8 billion in new issuance last week. That’s actually up from each of the previous three weeks (including a rare issuance-free week).

At the current pace, October will be the slowest month of the year for the asset class. There has been $3.7 billion in issuance so far this month, says LCD’s Matt Fuller. Year-to-date U.S. issuance is $229 billion, down 15% from the pace seen in 2014.

One potential bright spot: U.S. investors poured a whopping $3.3 billion into high yield funds last week, the most since 2011.