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U.S. Leveraged Loan Repricing Activity Keeping the Market Busy at Year End

Leveraged loan repricing activity in the U.S., which started 2017 with an unprecedented bang, is not ending the year with a whimper.

Helped along by a perpetually accommodating investor market, repricings totaled $71.9 billion in November, making it the second-busiest month for these deals ever, after the epic $101 billion in January, according to LCD.

Leveraged loan repricing volume

With the recent activity, repricings in 2017 total a dizzying $520 billion and have averaged some $47 billion per month, nominally topping what has been a record year in the overall leveraged loan market, with $468 billion of new institutional issuance to date. (As usual, we’ll note that there’s some overlap in the these numbers; the total institutional issuance figure includes some $100 billion in repricings that were re-syndicated, as opposed to completed via amendment.)

Room to run?

Will the repricing wave continue into December, and through year-end, a notoriously sleepy time for the leveraged finance market?

If the Call Wall is any indication, repricings could keep the market busy—if grumpy—into the holidays. There is $63 billion of outstanding institutional issuance on which call premiums expire in December, with the bulk priced at par or higher, roughly the same as in November. The Call Wall eases somewhat in January and February, before stepping down sharply as 2018 progresses.

Par amount outstanding by prepay call expiration

Repricing activity depends on whether institutional investors continue to accommodate investors, of course, something they seem prepared to do. Indeed, the soaring November repricing activity comes despite 1) a net outflow of roughly $1.5 billion from U.S. loan funds and ETFs so far this month, according to Lipper weekly reporters—that’s $2.5 billion if you take into account reclassifications between open- and closed-end funds, and 2) a 23 bps dip in loan prices, per the Index, due in large part to contagion related to the sell-off in the high-yield bond market this month.

Even with the recent outflows, investors continue to sit atop cash. There has been a net $11.1 billion added to loan funds so far this year, according to Lipper.—Tim Cross/Marina Lukatsky

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