LMA to EC, Parliament: No, actively-managed CLOs aren’t bad; Yes, CLOs are Regulated

The Loan Market Association has written a letter in response to a recent Q&A between the European Commission and European Parliament. The LMA letter highlights an inaccuracy in the response to one of the questions, as well as once again advocating that the fact that CLOs are actively managed transactions should be viewed as a positive when they are being assessed for suitability as STS transactions.

The questions were submitted by Roberto Gualtieri, chairman of the EP’s Committee on Economic and Monetary Affairs (ECON), as part of the Parliament’s work on the STS regulation. The corresponding responses were tabled by the European Commission’s Lord Hill, who initiated the Capital Markets Union project.

The specific question referenced in the LMA’s letter — number 41 — relates to CLOs, and asks about the potential benefits and risks regarding their eligibility for inclusion as STS securities.

The response notes that the main benefit was the ability of the CLO to create a bridge between capital markets and firms, but then goes on to highlight several negatives. Those include the active management aspect of a CLO, and the fact that ‘CLOs managers are alternative funds and as such they are not subject to prudential capital requirements like banks or MIFID institutions.’

With regards to the first point about active management, the LMA has long since lobbied against this negative perception of an actively managed vehicle.

And the second point referring to CLOs not being regulated is based on a CLO Primer written by Andreas Jobst in 2002. As such it pre-dates both the CRR and MiFID regime, and more importantly is inaccurate. “CLO managers are regulated entities under MiFID, AIFMD or an equivalent third country regulator,” notes the LMA’s Nicholas Voisey, managing director.

Voisey continues, “We are concerned that policy is being drafted based on inaccurate and historical information, despite the work of the industry to educate policy makers. We note particularly the reference to the CLO primer dated December 2002. Further, we believe a manager adds expertise to a transaction, monitoring the portfolio, and adding in-depth and independent credit analysis on each asset. The CLO manager has knowledge and experience in corporate credit and represents the CLO on creditor committees and in any workout scenario so facilitating corporate recovery and preserving jobs.” — Sarah Husband

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This story first appeared on, LCD’s subscription site offering complete news, analysis and data covering the global leveraged loan and high yield bond markets. You can learn more about LCD here.


High Yield Issuance Jumps, Leveraged Loan Recaps Emerge As Finance Market Plods Along

U.S. leveraged finance issuance totaled $9.4 billion last week thanks largely to a spate of drive-by high yield bond deals, with the leveraged loan market seeing a host of opportunistic credits amid unimpressive overall volume in that segment.

The $9.4 billion is down slightly from the $10.7 billion recorded the previous week. High yield issuance totaled $6.8 billion last week, bringing the year-to-date total in that sector to $78.6 billion. That’s down 47% from the same period in 2015, according to LCD, an offering of S&P Global Market Intelligence.

US leveraged finance issuanceLeveraged loan issuance was a tepid $2.6 billion during the week, a sharp drop from the previous week’s $7 billion. That brings U.S. leveraged loan issuance to $128 billion so far in 2016, down some 18% from the same period last year.

Of note in high yield last week, Cheniere Energy wrapped a $1.25 billion offering backing a refinancing at the company’s Cheniere Corpus Christi level. The offering was upsized from $1 billion. NRG Energy also refinanced last week, pricing a $1 billion deal (BB-) at 7.25%.

This activity comes amid another hefty withdrawal from U.S. high yield funds (though cash inflows have returned in the past few days).

The leveraged loan market was slow last week as far as new issues, despite increasingly solid fundamentals. Indeed, there were a pair of dividend/recapitalizations – for Amneal Pharmaceuticals and clothing retailer J.Jill Group – indicating that market tone is improving.

The largest deal to launch was a $1.3 billion credit backing Pilot Travel Centers, which refinanced existing bank debt, trimming interest expense in the process.

The biggest news in the loan market last week: Investors poured a relatively whopping $303 million into U.S. loan funds, the largest such inflow in more than a year.

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European leveraged loans gain 0.17% on Friday; YTD return: 0.18%

ELLI Daily 2016-02-08

The European Leveraged Loan Index (ELLI) gained 0.17% on Friday (excluding currency). The ELLI has returned 0.06% thus far in February. The total return for the ELLI in the year to date is 0.18%.

In contrast, the U.S. leveraged loan market has returned -0.72% so far in 2016. — Staff reports

This story first appeared on, LCD’s subscription site offering complete news, analysis and data covering the global leveraged loan and high yield bond markets. You can learn more about LCD here


Investors Again Withdraw Cash From US Leveraged Loan Funds; Streak at 14 Weeks

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.

leveraged loan fund flows

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

Follow Matthew on Twitter @mfuller2009 for leveraged debt deal-flow, fund-flow, trading news, and more.


Volume of new middle market deals in Oct looks set to extend decline

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).

Middle Market loan vol Oct 22 2015





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