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Retail Investors Withdraw Record $3.3B from US Leveraged Loan Funds

loan fund flows

U.S. loan funds reported an outflow of $3.29 billion for the week ended Dec. 19, according to Lipper weekly reporters only. This is once again a record outflow for loan funds, easily surpassing last week’s $2.53 billion exit. Prior to that, the next largest outflow was back in August 2011 at negative $2.12 billion.

This is also the fifth consecutive week of withdrawals, totaling roughly $9.9 billion over that span. The four-week trailing average is now $2.05 billion, from negative $1.66 billion last week.

Mutual funds were tapped for a net $3 billion during the observation period, while a comparatively light $298.5 million was pulled from ETFs.

Outflows have now been logged in seven of the last nine weeks and that has taken the year-to-date total inflow to just $406 million, after cresting $11 billion in October.

The change due to market conditions last week was a decrease of $772.7 million, milder than last week’s $1.231 billion drop, which was the largest in four years. Total assets were roughly $95.3 billion at the end of the observation period and ETFs represent about 10% of that, at roughly $10.5 billion. — Jon Hemingway

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US Leveraged Loan Issuance Downshifts in 2018, with $609B in Volume

US volume annual

U.S. leveraged loans have been ensnared in the broad market selloff in the fourth quarter that has likewise pressured the high-yield bond and equity markets.

Retail investors such has loan funds, shifting to risk-off mode, pulled cash from the asset class and left the leveraged loan new-issue machine, which operated largely unfettered in 2018, in a bind. As a result, loans aimed at institutional investors such as CLOs  has totaled $76 billion for the quarter through Dec. 14, according to LCD, the lowest amount since the first quarter of 2016, before interest rates began to rise, kick-starting a long period of dramatic growth for the asset class.

The fourth-quarter number is down 15% from the prior quarter and 46% from 2Q18.

The recent activity leaves 2018 U.S. leveraged loan issuance at $609 billion, taking into account institutional loan issuance and credits syndicated to traditional banks and financial institutions (these deals include amortizing term loans and revolving credits). That’s down from the record $650 billion in 2017, according to LCD.

The institutional loan segment posted $436 billion this year, compared to a record $503 billion last year, according to LCD.

Note: While these numbers are as of Dec. 14, they are not expected to change dramatically between that date and the end of the year proper.

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Leveraged loan funds log record $2.53B outflow

U.S. loan funds reported an outflow of $2.53 billion for the week ended Dec. 12, according to Lipper weekly reporters only. This is the largest weekly outflow on record for loan funds, topping the prior mark of negative $2.12 billion from August 2011.

loan fund flowsThis is also the fourth consecutive week of withdrawals, totaling a whopping $6.63 billion over that span. With that, the four-week trailing average is now deeper in the red than it’s ever been at $1.66 billion, from negative $1.01 billion last week.

Mutual funds were the catalyst in the latest period as investors pulled out a net $1.82 billion, the most since August 2011. Another $704.9 million of outflows from ETFs was the most ever.

Outflows have been logged in six of the last eight weeks and that has taken a big bite out the year-to-date total inflow, which has slumped to $3.7 billion after cresting $11 billion in October.

The change due to market conditions last week was a decrease of $1.231 billion, the largest drop for any week since December 2014. Total assets were roughly $99.3 billion at the end of the observation period and ETFs represent about 11% of that, at roughly $10.9 billion. — Jon Hemingway

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US CLO Issuance Hits Record Volume, Topping $125B

CLO issuance

CLO issuance in the U.S. in 2018 has topped $125 billion, officially eclipsing the all-time record of $124.1 billion set in 2014.

The recent activity raises the total size of the CLO market in the U.S. to $600 billion, according to J.P. Morgan, which projects the market to grow to $700 billion by the end of 2019, after expected net issuance of $100 million next year, taking into account maturing CLOs and loans that are paid down.

To be sure, the CLO market has accelerated in recent years, and following the financial crisis. The total outstanding at the end of 2014 was $350 billion. The pre-crisis peak was $256 billion in September 2008.

Collateralized loan obligation vehicles are an essential component of the U.S. leveraged loan investor base, snapping up roughly 60% of credits offered to institutional investors. – Andrew Park

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US Leveraged Loans Lose 0.22 Yesterday; YTD Return Dips to 2.38%

Daily loan index 2018-12-10

Loans lost 0.22% yesterday after losing 0.16% 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, lost 0.38% yesterday.

Loan returns are –0.66% in the month to date and 2.38% in the YTD.

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Global High Yield Default Tally Dips to Lowest Level in 2 Years

The 2018 global corporate default tally remained at 76 this week, the lowest total for this point in December since 2015, according to a report by S&P Global Fixed Income Research.

The U.S. continues to hold the highest share of corporate defaults this year, with 44 (58% of the total), followed by emerging markets with 16, Europe with 11, and other developed markets (Australia, Canada, Japan, and New Zealand) with five.

By sector, oil and gas leads the default tally with 14 defaults, or 18% of the total, followed by retail and restaurants with 11, or 14% of the total.

Distressed exchanges continue to be the leading cause of defaults in 2018, with 27 defaults, followed by missed principal and interest payments (including defaults on debt obligations) with 24 defaults, bankruptcy with 16 defaults, and regulatory intervention with one default. The remaining eight defaults were confidential.

In terms of the trailing-12-month rate, the U.S. speculative-grade corporate default rate remained at an estimated 2.64% in November, while the European speculative-grade corporate default rate decreased to an estimated 1.93% in November, from 1.94% in October, according to S&P Global. — Rachelle Kakouris

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LCD comps is an offering of S&P Global Market Intelligence. LCD’s subscription site offers complete news, analysis and data covering the global leveraged loan and high yield bond markets. You can learn more about LCD here.