Loan funds reported a $164 million retail-cash outflow for the week ended Oct. 28, building upon last week’s outflow of $169 million, according to Lipper. This is the 14th consecutive withdrawal, for a total redemption of $5.8 billion over that span.
The outflow was all from mutual funds, at $212 million, while ETFs countered with an inflow of $48 million, for an inverse 29% of the total. Last week’s outflow was 98% mutual funds, and the two weeks prior were also inverse, with ETF inflows filling in mutual fund outflows, suggesting the potential for fast money hedging strategies and market timing.
Despite another a solid outflow, the trailing four-week average moderates to negative $187 million per week, from negative $343 million last week and negative $365 million two weeks ago.
The year-to-date outflow deepens to $9.6 billion, with just 4% tied to ETFs, versus an outflow of $10.1 billion at this point last year, with no measurable ETF influence.
In this past week’s report, the change due to market conditions was negative $29 million, which is essentially nil against total assets, which were $85.8 billion at the end of the observation period. The ETF segment accounts for $6.3 billion of the total, or approximately 7% of the sum. — Matt Fuller
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Two new deal launches this week have kept the middle market primary alive, but just barely. It remains quiet on the supply front, and October volume currently projects to fall short of September’s $1.4 billion, which is the low point for 2015. Middle market loan volume has declined in each month since May.
The new deal launches were loans for Primeline Utility Services and Alpha Media. – Jon Hemingway
Chart shows new-issue middle-market loan volume (loans of up to $350 million).
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).
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.
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 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.
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 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
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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.
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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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.
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
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