Thomson Reuters LPC
Leveraged Loan Monthly – June 2017
Contents:
- Leveraged Loan Market Overview
- Investor Overview
- CLO Market Analysis
- List of recent CLOs / League Tables
- Loan Fund Flows & Returns
Key Points:
Primary Market:
- Leveraged loan issuance was a record $732 billion in 1H17, easily outstripping the $381 billion posted in the first half of last year. The previous record was in 1H13 when $660 billion of volume was recorded. The growth in lending this year continues to be driven by refinancing activity. In addition, the share of leveraged issuance comprised of institutional loans has grown to 67% in 1H17, from 42% last year.
- A large share of leveraged lending in the first half of this year (71%) was once again made up of refinancing activity, compared to a 47% share in 1H16. New money volume stands at $215 billion year to date, 7% higher compared to last year.
- Institutional loan issuance has surged to a new high of $496 billion in 1H17, far ahead of the $163 billion recorded in the first half last year and 26% higher than the previous record of $395 billion in 1H13. High yield bond issuance was flat with $23 billion of volume in June. Issuance for 1H17 stands at $151.5 billion, surpassing the $119 billion recorded in the first half of last year.
- As in the broader leveraged loan market, institutional issuance continues to be driven by refinancing activity, albeit at a slower rate. Although refinancings have dominated in 2017, new money institutional loan issuance has increased. New money volume stands at $137 billion in 1H17, up 27% from $103 billion recorded in 1H16.
- The size of the institutional loan market increased to $925 billion in June, a gain of $25 billion over the prior month, pushing year to date growth to almost $45 billion.
- M&A leveraged loan volume stands at $133 billion in 1H17, down from the $141 billion recorded in 1H16. Non-LBO activity fell to $81 billion from $101 billion in the corresponding period last year. In contrast, LBO issuance increased to $51 billion, up 27% from $40 billion a year ago.
- Middle market lending volume stands at $79 billion in 1H17, with $63 billion of issuance in the large middle market segment and $16 billion in the traditional middle-market space. Overall middle market issuance is 23% higher in 1H17 compared to last year.
- European leveraged loan issuance closed the first half of the year with $134 billion of volume, led by $87 billion in refinancing activity- a jump from the $33 billion recorded in 1H16. New money volume was flat YoY at $47 billion.
- After tightening in May, new issue yields widened in June, with large corporate credits averaging 4.76% and middle market yields at 6.2%. For 2Q, yields were higher over the prior quarter: large corporate posted an average yield of 4.73%, and middle market loans 6.16%. Yields have ticked upward as the share of lower-rated credits reaching market goes up, combined with a higher LIBOR rate.
- Average debt to EBITDA levels were higher in 2Q17 than in the prior quarter, increasing to 6.4 times for broadly syndicated LBO transactions and 6.15 times for institutional middle market LBOs.
There were three additional defaults recorded in June, amounting to $1.9 billion of institutional loan debt. They were Ignite Restaurants. ($115.3 million), Ascent Resources ($1.056 billion), and Gymboree ($760.6 million). Year-to-date, institutional loan default volume stands at $13.4 billion. The trailing twelve month loan default rate ticked up to 2%.
Secondary Market:
- Loan returns were mostly flat in June, posting a return of 0.04%, per the S&P/LSTA LLI, while open-end loan funds lost 0.07%. For 1H17, Open-end loan funds have returned 1.16% on average while the index is up 1.91%.
- Although secondary market bids have climbed this year, prices ticked down in June, with multi-quote institutional term loans finishing the month at 97.64 with flow names at 98.83.
- Although the secondary market remains highly bid, the share of loans bid in the par-plus area declined to 58%, from 63% a month ago. At this point last year, the par-plus share stood at 8%. The 101-plus share also declined to 4% .
- European flow names remain highly priced, ending June at 100.67. A year ago, the Lev40 was at 98.9.
CLOs / Loan Funds:
- S. CLO new issue jumped in June, posting the largest monthly issuance this year with almost $15 billion in volume. This was a $5 billion jump over the previous month, taking first half issuance past $52 billion, doubling the volume recorded over the same period last year.
- CLO Refinancing activity jumped in June with $11 billion in refinancings spread over 24 deals, and $7.9 billion in reset activity from 18 deals. There was over $100 billion of combined refinancing and reset activity in the first half of the year.
- CLO AAA discount margins tightened in June to an average of 125 bps (based on deals where discount margins were available).
- Four new issue CLOs totalling €1.6 billion priced in the European market in June taking 1H17 volume to €8 billion over 21 deals, compared to €7 billion recorded over the same time period last year.
- European CLO pricing was flat with the average AAA discount margin of 88 bps in June.
- Assets under management are now at $458 billion for U.S. CLOs and €69 billion for European CLOs.
- Retail loan funds added $153 million in June (based on funds that report weekly), taking YTD inflows to $16.7 billion. Since the third quarter of last year, loan funds have recorded over $32 billion in inflows.
- Loan mutual fund & ETF assets under management (market value) continued to trend up through June, ending the month at over $154 billion.
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