Loan-fund AUM edges up in July, but outflows heavy so far in August

After declining by $2.8 billion in June, loan mutual funds’ asset under management edged up $343 million in July, to $136 billion, according to Lipper FMI and fund filings, as concerns over the potential Grexit faded after Greece agreed to a bailout package from the European Union. July’s small increase left loan fund AUM down $5.3 billion over the first seven months of 2015, from 2014’s final reading of $141.3 billion (though outflows resumed and intensified in early August amid choppy conditions across the capital markets, as we discuss below).

Loan fund AUG in July



May returns: Equities outrun field; high yield bests leveraged loans

loan returns v high yield

Leveraged loan returns were in the middle of the pack among the five asset classes LCD tracks monthly, behind equities and high yield bonds, while outperforming investment-grade corporate bonds and 10-year Treasuries. The 10-year Treasury yield climbed to 2.12% on May 29 from 2.05% at the end of April.

For the first five months of 2015 the story is similar. The 10-year yield is down slightly from the year-end mark of 2.17%. As a result, 10-year Treasuries and investment-grade corporates are lagging loans on the year-to-date leaderboard. High-yield bonds, meanwhile, are ahead, and equities slightly behind. – Steve Miller

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This story is taken from LCD’s monthly wrap-up of the leveraged loan asset class. That info is available to LCD News subscribers here.


American Tire Distributors outlines price talk on $720M leveraged loan

An arranger group led by Bank of America Merrill Lynch today launched the loan refinancing for American Tire Distributors, setting price talk of L+450-475, with a 1% LIBOR floor, and a 99.5 offer price. The loan includes 101 hard call protection for one year, sources said.

The new $720 million, 6.5-year term loan will refinance the issuer’s existing term debt, sources said. The loan will be covenant-lite. The transaction has seen some early momentum, sources said. Commitments are due by noon EDT on Thursday, March 26.

At current talk, the loan would yield 5.72-5.98% to maturity.

Recall that the issuer in January tapped the loan market for a $140 million add-on term loan due 2018 (L+475, 1% LIBOR floor), but that loan was unwound when American Tire didn’t proceed with its planned IPO.

B/B2 American Tire then followed up in February with $855 million of 10.25% subordinated notes due 2022 to refinance its 11.5% subordinated notes due 2018 and fund a dividend to owner TPG.

Huntersville, N.C.-based American Tire Distributors distributes tires, wheels, service equipment, and shop supplies to the replacement-tire market. – Chris Donnelly


LCD’s Daily Leveraged Loan Playbook: Your Guide to today’s market

LCD each days gives leveraged loan market players a quick, simple way to catch up on the market and prepare for the day’s activity: The Daily Leveraged Loan Playbook.

leveraged loan daily playbook

The Daily includes a look at what’s upcoming in the current day’s new-issue and secondary markets, as well as expected developments regarding defaults, amendments and loan prices in the secondary.

It also offers snapshot statistical analysis of the day’s markets, including loan returns, recent issues, gainers/losers in the previous day’s trading market, and updated new-issue stats.

If you haven’t seen The Playbook, check it out: LCD Daily Playbook.

For more info on The Playbook or other LCD products contact Marc Auerbach



Fifth Street BDC appoints Owens as CEO, replacing Tannenbaum

Fifth Street Finance Corp. has named Todd Owens as CEO, replacing Leonard Tannenbaum.

Owens most recently was president of Fifth Street Finance Corp., a role he held since September 2014.

Prior to Fifth Street, Owens spent 24 years at Goldman Sachs, where he was head of U.S. West Coast Financial Institutions Group, head of specialty finance, and a senior member of the bank group. He was also lead banker on FSC’s IPO.

Tannenbaum remains chairman and CEO of Fifth Street Asset Management, manager of two publicly traded BDCs, Fifth Street Finance Corp. (FSC) and Fifth Street Senior Floating Rate Corp. (FSFR).

Fifth Street Asset Management joined fellow BDC managers Medley and Ares, which all listed shares in IPOs last year.  – Abby Latour

Follow Abby on Twitter for news and insights on the middle market and BDCs segments.


US Leveraged Loans Return Slim 1.60% in 2014; Lose 1.25% in Dec.

leveraged loan returns-annual

The S&P/LSTA Leveraged Loan Index return fell to a three-year low of 1.60% in 2014, from 5.29% in 2013. The Loan 100 lagged the broader Index in 2014 with a 0.99% return, after advancing 5.02% in 2013.

leveraged loan returns-monthly

For December, the S&P/LSTA Index returned negative 1.25%, as loans traded lower in the face of record retail outflows and crumbling investor sentiment early in the month.

It was the biggest monthly setback for the Index since August 2011, when returns plunged to a post-credit-crisis low of negative 4.40% amid a cocktail of exogenous events that was capped by S&P’s downgrade of the U.S.’s credit rating. – Steve Miller

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Market Reset: Is this the new normal for leveraged loans?

Amid softening technical conditions and the risk-off theme that has dominated capital markets lately, loan yields have climbed 50-75 bps over the past month, with prices on loans falling markedly, as evidenced by the secondary bid distribution chart.

loan bids by range

Does the softer market represent a new normal for leveraged loans?

The outlook, as always, is in the eye of the beholder. In recent days, stability in the equity markets has allowed loan prices to find a bottom. That said, participants suggest the bias for the time being may be negative. Here’s why:

  • Loan fund flows: managers expect outflows to persist, what with rates falling in recent weeks. That will put more supply in the system as managers sell loans to meet redemptions.
  • Relative-value players: HY funds also remain net sellers of loans, participants say, further pressuring prices.
  • CLOs: The pace of prints remained robust in early October with managers inking $6.5 billion through the 16th, pushing year-to-date issuance to a record $99.9 billion. Still, players expect the number of new deals to fall significantly until conditions improve. That may drain liquidity from the system in the months ahead.
  • Supply: while off the post-credit-crunch highs of August, there remains $33.7 billion on the M&A forward calendar, much of which will hit the market over the final months of 2014. Given today’s flagging loan demand, placing this paper may be challenging.


This analysis is part of a more detailed LCD News story, available to subscribers here. – Steve Miller

Follow Steve on Twitter for an early look at LCD analysis, plus market commentary.


WR Grace launches bankruptcy exit loan as BBB-/Ba2 ratings emerge

wr grace logoBookrunners Goldman Sachs, Deutsche Bank, Bank of America, and HSBC launched their $1.15 billion, cross-border term debt package backing W.R. Grace & Co.’s exit from Chapter 11.

With loan and issuer ratings emerging at BBB-/Ba2, arrangers are talking the debt package at L+250, with a 0.75% LIBOR floor, at 99.5, with the euros 25 bps wider on the spread. The seven-year loans would include six months of 101 soft call protection.

The financing will include a $400 million, five-year revolving credit, and a $900 million funded term loan and a $250 million delayed-draw term loan, both with seven-year durations. Roughly $200 million of the funded term loan will be carved out in euros and distributed separately, while U.S. investors are asked to commit to a strip of the funded dollar and delayed-draw term loans, sources said. The delayed draw loan would be available for one year.

Citi, Commerzbank, Key Bank, PNC, and SMBC are senior managing agents for the exit financing.

The exit deal comes to market 12 years after Grace filed for bankruptcy and nearly five years after the company awarded the financing mandate.

The long-running bankruptcy case was precipitated by a nearly doubling of asbestos injury claims in 2000. The chemical company last month cleared the remaining hurdle to its exit plan, settling on a $1.1 billion payout for principal and accrued interest on its $500 million of pre-petition loans, rather than the higher sum that was sought by some investors. – Chris Donnelly