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TransDigm Extends Leveraged Loan Deadline, Bonds Fall on Citron Research Blast

TransDigm bonds fell as much as three points in active trading after a negative mention by shortseller Citron Research sent its stock price tumbling.

The company this morning extended commitment deadlines for its TLE repricing and new $2.029 billion, seven-year covenant-lite first-lien term loan to a date yet to be determined, sources said.

TransDigm’s $950 million of 6.375% subordinated notes due 2026 saw the majority of activity, falling to 99.75, versus 102.75 previously. The CCC+/B3 bonds priced in May at par, with proceeds used to fund the acquisition of Data Device Corporation (DDC).

TransDigm’s TLE is at 100/100.5 today, down about a half point from yesterday. The company’s TLD and TLC were both quoted at 99.75/100.5 today, down about a quarter point from the last session.

In the report, Citron’s activist short seller Andrew Left likens TransDigm’s business model in aerospace to Valeant’s in the pharmaceutical industry, to which he says investors are “riding the gravy train of highly leveraged profits based on a ‘price jacking’ strategy”.

TransDigm’s single largest customer is the Department of Defense, followed by Boeing and Airbus, according to the report, which argues that U.S. Government pressure will expose their business to gross revenue contraction and a devastating cut in EPS, adding that its business model has made them a dominant supplier of airplane parts to the aerospace industry while burdening its balance sheet with sky-high debt load.

The report cites then President-elect Donald Trump’s meeting with Boeing and Lockheed Martin and subsequent promises to lower prices for Air Force One and other military equipment, which Left says “will likely trickle down to subcontractors.”

The company’s stock, which trades on the NYSE under the ticker TDG, fell 11%, to $220. TransDigm’s market capitalization is approximately $13.4 billion.

TransDigm has been looking to reprice its $1.514 billion E term loan due May 2022, with price talk at L+275, with a 0% LIBOR floor, and offered at par. Existing pricing is L+300, with a 0.75% floor.

Credit Suisse today launched a repricing of the TLE, setting a Tuesday commitment deadline. The deadline was later accelerated to 5 p.m. EST on Monday before being put on hold.

TransDigm is also in the market with a new $2.029 billion first-lien term loan that will be used to refinance the existing C and D term loans. Pricing is L+275, with a 0% floor and an OID of 99.75. The deadline for this deal was previously today at 5 p.m. EST.

TransDigm Group Incorporated designs, produces, and supplies aircraft components in the United States. TransDigm is rated B/B1. Existing issue ratings are B/Ba2, with a 3H recovery rating from S&P Global Ratings. Total debt at the company is approximately $10.3 billion. — Rachelle Kakouris /Kelsey Butler

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Cash Flows to US Leveraged Loan Funds Ease, Though Still Hit $548M

U.S. leveraged loan funds recorded an inflow of $548.4 million in the week ended Jan. 18, according to the Lipper weekly reporters only. This is the tenth straight week of inflows for a total of $10.6 billion over that span.

US loan funds

That said, this is the lightest inflow in seven weeks and the four-week trailing average dipped to less than $1 billion for the first time in six weeks, at $917.2 million.

ETF flows accounted for just $57.3 million of the total, or 10%, its smallest share in nine weeks.

Leveraged loan funds in 2016 recorded inflows of $6.25 billion, based on inflows of $1.26 billion to mutual funds and $4.99 billion to ETFs, according to Lipper.

Loan funds surged in the second half of last year. Inflows were recorded in 23 of the last 26 weeks for a total inflow of $11.82 billion over that span. In the first 26 weeks of 2016, the cumulative outflow was $5.565 billion, with 18 negative weeks against just eight positive readings.

In total, inflows were recorded in 31 of 52 weeks last year.

The change due to market conditions this past week was positive $60.7 million. Total assets were $83.05 billion at the end of the observation period. ETFs represent about 18% of the total, at $15.31 billion. — Jon Hemingway

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Leveraged Loans: Jefferies Prices $528M Venture XXVI Deal for 2017’s First CLO

Jefferies LLC today priced a $527.63 million CLO managed by MJX Asset Management, according to market sources. This is the first new-issue CLO to price this year.

The manager is retaining a 5% vertical slice in its capitalized majority-owned affiliate (C-MOA) to comply with risk retention in both the U.S. and Europe.

Pricing details are as follows:

Up to 60% of the loans in the portfolio can be covenant-lite, according to a presale report from Fitch Ratings analysts.

The non-call period will run until July 20, 2019 and the reinvestment period will run until Jan. 20, 2022. A weighted average life (WAL) test will also run until April 20, 2025. The legal final maturity is on Jan. 20, 2029. — Andrew Park

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With Cash Flooding Market, US Leveraged Loan Issuers Rush to Reprice

loan repricing

The rush of issuers taking advantage of low rates to reprice existing loans, which started in earnest in September, is far from over.

Indeed, the surge in repricings so far in 2017 already has broken records, as borrowers continue to queue up for cheap money. Through yesterday, January loan repricings totaled $49.9 billion, topping the full-month record of $48.6 billion in January 2013, according to LCD, an offering of S&P global Market Intelligence.

The largest loans backing the roughly $40 billion wave of repricings so far this month include Asurion’s $2.65 billion deal, a $2.5 billion B-1 term loan to consolidate Petco Animal Supplies debt, and a $2.2 billion repricing for Travelport.

The average spread savings among this month’s repricings is 78 bps, with the average repricing window from initial issuance about 17.6 months. For reference, borrowers saved 75 bps on average via repricings in the fourth quarter and returned to market 16 months after the original issuance, on average.

And with cash continuing to pile up in investor coffers, repricings are getting bigger. The average size of repricings is $1.3 billion so far in January, the highest reading for any month in two years. — James Passeri

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US Leveraged Loans Gain 0.04% Thursday; YTD Return: 0.35%

Loans gained 0.04% today after gaining 0.03% yesterday, according to the S&P/LSTA Leveraged Loan Index.

The S&P/LSTA US Leveraged Loan 100, which tracks the 100 largest loans in the broader Index, gained 0.04% today.

Loan returns are 0.35% in the month to date and 0.35% in the YTD.

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US Leveraged Loans Gain 0.03% Yesterday; 0.31% MTD

Daily loan index 2017-01-09

Loans gained 0.03% yesterday after gaining 0.06% on Friday, according to the S&P/LSTA Leveraged Loan Index.

The S&P/LSTA US Leveraged Loan 100, which tracks the 100 largest loans in the broader Index, gained 0.01% today.

Loan returns are 0.31% in the month to date and 0.31% in the YTD.

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US Leveraged Loan Funds Start Year with $865M Cash Inflow

US loan funds

U.S. leveraged loan funds recorded an inflow of $864.9 million in the week ended Jan. 4, according to the Lipper weekly reporters only. That is down only slightly from $923.8 million in the prior week, but well off the peaks in December.

Still, this is the eighth consecutive week of inflows. With this result, the four-week trailing average slipped to $1.2 billion from $1.42 billion in the previous week.

ETF flows of $396.8 million accounted for 46% of this week’s total, the highest rate in nine weeks. Another $468.1 million flowed into mutual funds.

Leveraged loan funds in 2016 recorded inflows of $6.25 billion, based on inflows of $1.26 billion to mutual funds and $4.99 billion to ETFs, according to Lipper.

Loan funds surged in the second half of last year. Inflows were recorded in 23 of the last 26 weeks for a total inflow of $11.82 billion over that span. In the first 26 weeks of 2016, the cumulative outflow was $5.565 billion, with 18 negative weeks against just eight positive readings.

In total, inflows were recorded in 31 of 52 weeks last year.

The change due to market conditions this past week was positive $308.9 million, representing a 0.4% increase. Total assets were $80.66 billion at the end of the observation period. ETFs represent about 18% of the total, at $14.7 billion. — Jon Hemingway

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US Leveraged Loans Gain 0.06% Today, 0.19% MTD

Loans gained 0.06% today after gaining 0.04% yesterday, according to the S&P/LSTA Leveraged Loan Index.

The S&P/LSTA US Leveraged Loan 100, which tracks the 100 largest loans in the broader Index, gained 0.07% today.

Loan returns are 0.19% in the month to date and 0.19% in the YTD.

Daily loan index 2017-01-05

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US Leveraged Loan Returns Top 10% in 2016

US leveraged loan returns

Bolstered by a wave of cash pouring into market ahead of a long-awaited interest rate hike, the U.S. leveraged loan asset class just finished its best year since 2009, returning a healthy 10.16%, according to the S&P/LSTA Loan Index.

In fact, with the exception of 2009 – when loan returns whipsawed from a devastating 29% loss the previous year, in the midst of the financial crisis – the 10.16% return in 2016 was the best ever for loans, per the Index.

The loan market started last year slowly, losing nearly 2.25% in the first quarter, as investors withdrew cash from what was solidly a risk-off market.

Inflows picked up in the second-quarter, however, as did returns, continuing on for the remainder of the year, partly due to expectations of an interest rate hike by the Fed (on Dec. 14).

Leveraged loans, of course, tend to fare well in a rising rate environment, as the debt is floating-rate, as opposed to high yield bonds, which have a fixed rate throughout the life of the debt. – Tim Cross

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US Leveraged Loan Funds See Another Huge Investor Cash Inflow

US loan funds

U.S. leveraged loan funds recorded an inflow of $1.504 billion in the week ended Dec. 14, according to the Lipper weekly reporters only. Inflows of more than $1 billion have now been recorded in three of the past four weeks, as investors turned to floating-rate assets in anticipation of a December rate hike.

With this result, the four-week trailing average is at its highest level since October 2013, at $1.18 billion. Inflows have now been recorded in 29 of 50 weeks this year.

ETF flows set another new high of $601.5 million, or 40% of the total this week, the highest share in six weeks. Another $902 million flowed into mutual funds.

Year-to-date inflows to leveraged loan funds are $3.82 billion, based on outflows of $377.3 million from mutual funds against inflows of $4.19 billion to ETFs, according to Lipper.

The change due to market conditions this past week was positive $159.1 million. Total assets were $77.3 billion at the end of the observation period. ETFs represent about 17% of the total, at $13.5 billion. — Jon Hemingway

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