Leveraged Loan Distress Ratio inching toward recent highs

distressed loan ratio

Leveraged loan default rates in the U.S. have been hanging at or near historical lows for some time (especially when taking default behemoth EFH out of the mix).

The Leveraged Loan Distress ratio is another story, however. This ratio tracks loans bid below 80% of par in the secondary market. As is evident in the chart, the Distress ratio has spiked noticeably since this summer. – Staff Reports


CLO roundup: Pre-Thanksgiving flurry boosts quiet November

November, typically one of the busier months of the year for the primary leveraged loan/CLO market, has been unseasonably quiet, and with the U.S. taking time out to celebrate Thanksgiving this week, arrangers have been looking to price any CLOs they can before players begin to exit for the holiday.

As of Nov. 20 the U.S. had priced a total of $4.1 billion from eight CLOs this month, while Europe had notched up €1.28 billion from three deals.

Statistics in 2015 through Nov. 20 are as follows:

  • Global issuance is $103.26 billion.
  • U.S. issuance is $89.71 billion from 171 deals, versus $114 billion from 214 deals in the same period last year.
  • European issuance is €12.21 billion from 30 deals, versus €12.31 billion from 29 deals in the same period last year.


Story written by Sarah Husband and Andrew Park. You can follow the both on Twitter .



High yield bond prices fall further as some constituents notch large declines

The average bid of LCD’s flow-name high-yield bonds fell 132 bps in today’s reading, to 89.03% of par, yielding 10.58%, from 90.35% of par, yielding 10.05%, on Nov. 19. Performance within the 15-bond sample was deeply negative, with 12 decliners against two gainers and a lone constituent unchanged.

Today’s decline is a seventh-consecutive observation in the red, and it pushes the average deeper below the previous four-year low of 91.98 recorded on Sept. 29. As such, the current reading that has finally pierced the 90 threshold is now a fresh 49-month low, or a level not seen since 87.93 on Oct. 4, 2011.

The decrease in the average bid price builds on the negative 58 bps reading on Thursday for a net decline of 190 bps for the week. Last week’s losses were also heavy, so the average is negative 369 bps dating back two weeks, and the trailing-four-week measure is much worse, at negative 545 bps.

Certainly there has been red across the board, but several big movers of late continue to greatly influence the small sample. For example, in today’s reading, Intelsat Jackson 7.75% notes were off six full points—the largest downside mover today, to 44, and now 20.5 points lower on the month—while Hexion 6.625% paper was off five points, at 73.5, and Sprint 7.875% notes fell 5.5 points, to 77.

The market has been crumbling especially hard this week, with energy and TMT credits leading the charge, amid a lack of participation, the influence of speculative short-sellers, and despite signs that retail cash has been flowing into the asset class. There was a similar dynamic after Thanksgiving last year, sending the average to the year-end low of 93.33 on Dec. 16, 2014.

As for yield in the flow-name sample, the plunge in the average price—with many names falling into the 80s and a couple of others more deeply distressed—has prompted a surge in the average yield to worst. Today’s gain is 53 bps, to 10.58%, for a 2.92% ballooning over the trailing four week. This is a 13-month high and level not visited since 10.70% recorded on June 10, 2010.

The average option-adjusted spread to worst pushed outward by 47 bps in today’s reading, to T+791, for a net widening of 167 bps dating back four weeks. That level represents a wide not seen since the reading at T+804 on Sept. 23, 2010.

Both the spread and yield in today’s reading remain much wider than the broad index. The S&P U.S. Issued High Yield Corporate Bond Index closed its last reading on Monday, Nov. 23, with a yield to worst of 7.88% and an option-adjusted spread to worst of T+652.

Bonds vs. loans
The average bid of LCD’s flow-name loans fell nine bps, to 96.31% of par, for a discounted loan yield of 4.42%. The gap between the bond yield and discounted loan yield to maturity is 616 bps. — Staff reports

The data

Bids fall: The average bid of the 15 flow names dropped 132 bps, to 89.03.
Yields rise: The average yield to worst jumped 53 bps, to 10.58%.
Spreads widen: The average spread to U.S. Treasuries pushed outward by 47 bps, to T+791.
Gainers: The larger of the two gainers was Valeant Pharmaceuticals International 5.875% notes due 2023, which rebounded 3.25 points from the recent slump, to 85.25.
Decliners: The largest of the 12 decliners was Intelsat Jackson 7.75% notes due 2021, which dropped six full points, to 44, amid this fall’s ongoing deterioration of the credit.
Unchanged: One of the 15 constituents was unchanged in today’s reading.


US Loan Fund Assets Continue to Dwindle, Though Outflows Ease

Loan fund assets

In October, loan mutual funds’ assets under management sank $1.6 billion, to $127 billion, amid further outflows from the asset class, according to data from Lipper FMI and fund filings.

On the plus side, it was the smallest decline in recent months, following negative $4.6 billion and negative $2.8 billion in August and September, respectively, and an increase of $343 million in July.

On the minus side, it leaves total loan AUM at the lowest point since May 2013 and down $48.1 billion from an apex of $175.1 billion in March 2014. – Steve Miller

Follow Steve on Twitter for leveraged loan news and analysis. 


Petco nets financing commitments for $4.6B leveraged buyout

Petco Animal Supplies will be acquired by CVC Capital Partners and Canada Pension Plan Investment Board via a $4.6 billion agreement reached today with an owner group led by TPG and Leonard Green & Partners.

Debt financing for the transaction has been committed by Barclays, Citigroup, Royal Bank of Canada, Credit Suisse, Nomura and Macquarie, sources said. Financing specifics haven’t emerged yet.

The acquisition is expected to close in early 2016.

Based in San Diego, Petco is a leading specialty retailer of premium pet food, supplies and services. The company operates more than 1,400 locations across the U.S., Mexico and Puerto Rico, along with one of the leading e-commerce platforms in the pet industry.

Goldman, Sachs & Co. and J.P. Morgan Securities are acting as financial advisors to Petco. Ropes & Gray acted as legal counsel to Petco. Barclays, Citigroup and Moelis acted as lead financial advisors to CVC and CPPIB. Gibson Dunn acted as legal counsel to CVC and CPPIB. CPPIB was also separately advised by Torys LLP.

Petco last approached the loan market in early 2013 with a repricing of its then $1.2 billion covenant-lite B term loan due November 2017 to L+300, with a 1% LIBOR floor. — Chris Donnelly