Issuance of riskier ‘institutional’ credits already has topped $400 billion in 2017, the earliest in a year the U.S. leveraged loan market has hit that milestone, according to LCD.
Institutional loans are structured for and sold to non-bank investors, mainly collateralized loan obligation vehicles (CLOs) and retail loan funds, but also to hedge funds, pension funds, and other non-bank investors. These credits typically have more aggressive structures than those syndicated to traditional banks and finance companies (institutional credits might have a slightly longer tenor, or be second-lien, or are covenant-lite, for instance).
At its current pace – $404 billion YTD – U.S. institutional loan issuance would end the year at a whopping $539 billion, easily surpassing the existing record, $456 billion in 2013, according to LCD.
Sustaining such as pace will be difficult, however. Institutional issuance started off 2017 with a record $171 billion in the first quarter amid a wave of retail investor cash flooding into market, in anticipation of rate hikes from the Fed. It has trended steadily slower since then (though many of the levels remain impressive).
As well, history points to a slower end to the year. Since 2000, fourth-quarter volume has averaged 22% of the annual total. Given the heights at which the loan market started 2017, it would be no surprise to see a dip in that metric this time around.
Including ‘pro rata’ credits – revolving loans and amortizing term debt sold to traditional bank investors/finance companies – YTD U.S. leveraged loan issuance totals $511 billion, according to LCD. The record is $607 billion in 2013. – Tim Cross
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