March 12, 2019

Leveraged Loan Monthly – US: February 2019

by Hugo Pereira and Elizabeth Han.

The February 2019 edition of LPC’s Leveraged Loan Monthly is now available for download on LoanConnector & LC Reports.


  • Leveraged Loan Market Overview
  • US High Yield Bond Market Overview
  • Investor Overview and Fund Flows
  • CLO Market Analysis
  • CLO League Tables
    2019 CLO Activity

Primary Market

  • Leveraged loan issuance jumped in February despite continued pull back in the asset class from retail loan funds, ongoing negative press coverage and questions around further Fed rate hikes in 2019. There was $61.2bn of leverage loan volume, broken out between $31bn of pro rata leveraged issuance and $30.2bn of institutional leveraged issuance. This is a 50% increase from January volume. Leveraged loan issuance was $114.4bn in Feb 2018.
  • In February 2019, HY bond volume increased from $17.1bn to $20.7bn, the highest issuance since March 2018’s $27.9bn volume. Institutional loan issuance was $32.75bn, a jump from $12.45 recorded in the prior month but lower than February 2018 volume of $79.6bn.
  • New money institutional loan issuance returned as the markets gained confidence in their ability to get deals done. New money volume was $29.3bn in February, up from $9.9bn in the prior month, and refinancing activity also increased from $2.6bn to $3.4bn.
  • Average primary market yields for large corporate increased to 7.75% in February from 7.42% in the prior month, but declined for middle market borrowers from 10.02% to 8.44% between Dec 2018 and Feb 2019.
  • February institutional flex activity was firmly in favor of borrowers, with 13 loans downward flexing at an average of 51bp. Flex activity has shifted after the investor pull-back at the end of last year drove issuers to delay or price flex their deals upward.

Secondary Market

  • Leveraged loan returns declined 96bp in February month over month, posting a return of 1.59%, according to the SP/LSTA Lev Loan Index, as secondary prices rebounded less dramatically when compared to January. Open-ended loan funds returned on average 1.47% in February, down 83bp from 2.3% in January.
  • After plummeting 377bp over the last two months of 2018, the average bid for multi-quoted institutional loans continued its recovery in 2019, ending February at 96.26. The average bid for all institutional term loans was 96.21.
  • The share of loans with an average bid in the 98 to par range increased in February to 63% from 50% in January and 22% in December 2018 when loan prices took a dive. The share marked between 90 and 98 was 25% in February, down from 40% in January and 68% in Dec 2018. The par plus share ticked higher to 6%, while the share priced below 80 inched up 1% to 4%. On a dollar-weighted basis, 68% of loans are priced in the 98 to par range, up from 56% a month ago.
  • The yield on U.S. high-yield bonds tightened by 38bp in February. Yields have tightened by 138bp so far this year after widening above 8% at the end of the last year.
  • Five issuers defaulted on their institutional leveraged loan debt in February 2019, with Windstream Services logging $1.749bn of defaulted debt in its Ch.11 filing – the first telecom sector default since Avaya defaulted on $3.247bn of debt when it filed Ch. 11 in Jan 2017. The TTM default rate is 1.7% at the end of February, up from 1.5% in the prior month, according to the Fitch U.S. Leveraged Loan Default Index.

CLO and Loan Funds

  • CLO activity picked up in February from a sluggish January, issuing $13.2bn of new issue volume, up from $5.1bn in the prior month, despite widening AAA spreads and challenging environment for market arbitrage.
  • Refinancing and reset activity was low in February as spreads continued to widen from the start of the year. There was $1.5bn of refinancings, $940m in resets and one reissue for US$510m, in contrast to $9bn of total activity one year ago.
  • Average AAA DMs ticked higher in February to 140, up from 134.6 in the prior month. Some market participants at SFIG 2019 think wider spreads may remain as long as AAA buyers are a small and finite group, and noted that the wider coupon may make the CLO AAA tranche attractive when compared to similar rated tranches in other asset classes.
  • In a distribution of CLO portfolio prices, no U.S. CLOs had a WAB at or above par, with 38% of CLOs showing a WAB between 97 and 98, and 45% of CLOs showing a WAB between 98 and 99, compared with 19% and 0.5% respectively last month. European CLOs were flat month on month, with 38% having a WAB from 97-98, and 45% with a WAB between 98-99.
  • Loan retail outflows sent the AUM (market value) for loan mutual funds & ETFs lower to $146.1bn at the end of February. AUM has dropped 15% over the last three months, and February 27, 2019 marked the 15th consecutive week of loan retail outflows, with a total volume of $20.89bn

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