Thomson Reuters LPC
Leveraged Loan Monthly – Year-end 2017
Contents:
- Leveraged Loan Market Overview
- S. High Yield Bond Market Overview
- Investor Overview
- CLO Market Analysis
- List of recent CLOs / League Tables
- Loan Mutual Fund Flows & Returns
Primary Market:
- Leveraged lending jumped 60% to $1.4 trillion in 2017 to set a new record. Volume was 24% higher than the previous high-point ($1.1 trillion) recorded in 2013.
- The jump in activity was driven by $919 billion of institutional loans, which made up two-thirds of leveraged loan volume during 2017. Volumes were driven by strong across the board investor demand for yield.
- Breaking out leveraged issuance by purpose: the $933 billion of refinancing activity broke 2013’s record by 23% as a borrower-friendly market allowed issuers to cut lending costs and get more better terms. The new money share dropped to one-third of volume in 2017, it was 47% the previous year.
- At $924 billion, institutional issuance set a new record in 2017. Volume was 44% higher over the previous high point set in 2013, and $503 billion more than the previous year’s mark. Issuance in the high-yield bond space also rose by 24% year-over-year to $281 billion.
- M&A leveraged issuance increased 15% in 2017 to $311 billion. Volume was driven by a sharp increase in LBO volume (44% higher to $126 billion), second only to 2007’s issuance levels. LBOs made up 41% of M&A leveraged volume in 2017, compared to 32% the previous year.
- Lending in the middle market finished the year at $170 billion, or 23% higher YoY. Lending in the middle market space was the highest in three years and was driven by activity in the large middle market space, which was higher 30% YoY and made up 80% of 2017 volume.
- Four borrowers defaulted in December for a total of $2.2 billion in institutional loans. 2017 default volume stands at nearly $26 billion, compared to $17 billion the previous year. The trailing twelve month default rate ticking up to 2.4%, from 1.8% a year ago.
- European leveraged loan volume was higher 40% YoY to $256 billion spread over 397 deals. This represented the highest level of activity post-credit crisis
Secondary Market:
- Leveraged loans posted a return of 4.1% in 2017, according to the SP/LSTA LLI, down from the 10.2% posted the previous year. Open-ended loan funds posted a return of 3.64% in 2017, also lower than the 8.6% posted in 2016.
- In the secondary market, average bids for multi-quote institutional loans were up 20 bps in December to the 98.4 context. Average prices have risen 126 bps in 2017.
- At the end of December, the share of multi-quote institutional loans priced in the par-plus area stands at 68%. It is 72% when measured on a dollar weighted basis. At the other end of the price scale, 3% of credits are bid below 90 cents on the dollar.
- The European flow name Lev40 declined 45 bps in December, ending the month below par for the first time in 2017. After holding steady in the first half of the year, average levels in the European market dropped by a point in 2H17 and finished the year 80 bps lower compared to the end of last year.
- Yields in the U.S. high-yield bond market were flat in December but have risen 35 bps in 4Q17 according to the Bank of America Merrill Lynch High Yield Index. Yields have tightened by 39 bps in 2017 as the average price increased by a point to the 100.6 context.
CLOs/Loan Funds:
