YouTube video: April 2014 US leveraged loan market analysis

LCD’s video analysis detailing the U.S. leveraged loan market during March and 2014′s first quarter is now on YouTube.

The big story of early 2014 was robust M&A-related volume, which hit a post-credit crunch high of $62 billion in the first quarter. That, in turn, lifted total leveraged loan activity to $162 billion from a 15-month low of $127 billion during the final three months of 2013. Looking ahead, most players expect the market to remain relatively balanced.

This month LCD looks at:

  • S&P/LSTA Loan 100 Index
  • S&P/LSTA Index Loans Outstanding
  • Visible Inflows
  • Average New-Issue Clearing Yield of First Lien Loans
  • Loan Default Rate
  • M&A Institutional Loan Forward Calendar

The video is available here.

The URL:

Click here to download PDF slides of the video on Slideshare.

URL for the slides:

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Small loan fund inflow keeps inflow streak going at 95 weeks

Retail-cash inflows to bank loan mutual funds and exchange-traded funds totaled $48 million for the week ended April 9, according to Lipper. Of the total, just 7% was tied to the ETF segment.


This is the lowest weekly total of the year, and it’s down from $127 million last week and $257 million two weeks ago. Retail-cash flows to the asset class have settled into a lower range following a hot start to 2014 as there hasn’t been a single weekly total above $700 million since January. Moreover, this is the lowest one-week reading dating back 75 weeks, to the week ended Oct. 31, 2012.

The four-week trailing average dipped to $190 million, from $321 million last week and $379 million two weeks ago. Still, the net inflow streak is now at 95 weeks, with a total of $66.7 billion over that span, by the weekly reporters only.

Year-to-date inflows total $7 billion, of which $1.08 billion is ETF-related, or 16% of the sum. In the comparable year-ago period, inflows were $15.1 billion, with 11% tied to ETFs.

The change due to market conditions was negative $77 million. Total assets stood at $109.6 billion at the end of the observation period, with ETFs comprising $8.4 billion of the total, or approximately 8%. – Joy Ferguson


Fortune’s CLO criticism: The numbers tell a different story

In a story today, Fortune CNN Money takes the Federal Reserve to task for extending the deadline for banks to sell non-Volcker compliant CLO paper. The story itself is a polemic about the dangers that CLOs pose to the banking system. To back up this argument, the commentator, Cyrus Sanati, compares the potential losses of CLOs to those suffered by CDOs, which “imploded so spectacularly during the 2008 meltdown.”

There are several factual errors in the story. For instance, the story says, “But with Volcker set to go into force (officially) in July 2015, banks would not only have to stop creating CLOs now, they would also need to quickly sell off investments they have accumulated.”

However, while the rule would undoubtedly make it more challenging for banks to originate CLOs and, potentially, own CLO liabilities, there are regulator-approved fixes, such as structuring CLOs that are unable to hold bonds.

Also, the article says that “[f]or the last 94 weeks, there has been a positive inflow of cash into the CLO market.”

This figure is clearly a reference to retail inflows into U.S. loan mutual funds, not CLOs.

Those errata are, however, beside the point. The crux of what’s misleading about the Fortune piece is what amounts to this red herring:

“CLOs didn’t implode as badly as their CDO counterparts, so investors have gravitated to them over the last two years as a way to achieve outsize returns with no measurable increase in risk.”

The statement is technically correct, as far as it goes. In fact, CDOs had demonstrably worse performance in the downturn than CLOs. But saying that this constitutes different degrees of implosion is a statement that is grossly unfair. Here’s why:

According to S&P Ratings, the cumulative default rate on U.S. CDO obligations originally rated AAA (since 1996) is 14%; those include deals that bundled sub-prime mortgage backed securities. The comparable measure for U.S. cash-flow CLO liabilities originally rated AAA, by contrast, is zero.

What’s more, of the over 6,100 ratings issued by S&P on over 1,100 U.S. CLO transactions – including investment-grade and speculative-grade instruments – 25 tranches have defaulted, and had their rating lowered to D as a result.

Based on this, S&P calculated a 0.41% default rate, or just over four tranches for every 1,000 it has rated, across the entire debt stack. In either light, the CLO default experience hardly brings to mind an implosion.

Thus, the Fortune piece – by comparing CLO default rates with those of CDOs – is, in effect, calling an ant hill a lesser peak than Mount Everest. Again, this is true in the narrowest sense of the word, but specious with regard to describing the historical default experience of CLO liabilities. – Steve Miller


Caesars Growth $1.17B loan backing acquisitions enters secondary above issue price

The $1.175 billion B term loan for Caesars Growth Properties Holdings broke for trading late this morning at 100.375/100.875, from issuance at 99.5, according to sources. The seven-year loan is priced at L+525, with a 1% LIBOR floor. Credit Suisse, Citigroup, Deutsche Bank, UBS, J.P. Morgan, Morgan Stanley, Macquarie, and Nomura arranged the loan, which cleared tight to original talk. Proceeds will be used to back Caesars Growth Properties’ planned $2.2 billion acquisition of four properties from Caesars Entertainment and refinance debt at Planet Hollywood Resort & Casino. A $150 million revolver rounds out the first-lien financing, while the issuer is also expected to come to market with a $675 million second-lien bond deal, SEC filings show. Terms:

Borrower Caesars Growth Properties Holdings
Issue $1.175 billion
Spread L+525
LIBOR floor 1.00%
Price 99.5
Tenor seven years
YTM 6.5%
Call protection NC1, 101
Corporate ratings B-/B3
Facility ratings B+/B2
S&P recovery rating 1
Financial covenants net first-lien leverage
Arrangers CS, Citi, DB, UBS. JPM, MS, Maq, Nom
Admin agent CS
Price talk L+575/1%/99

Prudential prices $811.75M CLO via Goldman Sachs

Goldman Sachs today priced a $811.75 million CLO for Prudential Investment Management, according to market sources.

The transaction is the manager’s second new issue CLO to price this year, after the pricing of Dryden 31 Senior Loan Fund via Deutsche Bank at the end of January. Prudential also priced a refinancing of Dryden XXII via RBS in January.

The transaction, which is backed by a pool of at least 90% senior secured loans, is structured as follows:

The transaction has a two-year non-call period (July 2016), a four-year reinvestment period (July 2018), and a 12-year stated maturity (July 15, 2026).

With Prudential’s deal, CLO issuance in the year to date rises to $28.48 billion across 55 deals, according to LCD. In April, 10 deals have priced, totaling $5.85 billion. – Sarah Husband



US leveraged loans unchanged today; YTD return is 1.24%

Loans were unchanged today after finishing unchanged yesterday, according to the LCD Daily Loan Index.

The S&P/LSTA US Leveraged Loan 100, which tracks the 100 largest loans in the broader Index, was also unchanged today.

In the year to date, loans overall have gained 1.24%.

A full xls of the Daily Index is available to LCD subscribers, please click here.