Thomson Reuters LPC
Leveraged Loan Monthly – February 2018
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 is off to a fast start this year with over $186 billion in volume. In line with last year’s trend, the institutional component has driven overall activity with a 75% share year-to-date. Despite the high level of activity, volume is off 30% when compared to the first two months of 2017.
- Refinancing activity continues to make up the majority of leverage lending albeit with a smaller share, with new money issuance making up 44% of year-to-date volume, compared to 25% in 1Q17.
- Year-to-date institutional issuance stands at $145 billion, second only to last year’s record volume pace. On the high-yield bond front, issuance added $10 billion in February to take year-to-date volume to $34.4 billion. Issuance dropped as volatility roiled the capital markets.
- So far this year, the new money share of institutional issuance stands at 39% and continues to edge higher compared to last year’s levels.
- Institutional outstandings increased $15.7 billion in February and currently stands at $980 billion, a record level.
- Default activity was muted in February with one default recorded for retailer Charlotte Russe. Year-to-date, there has been $4.2 billion of defaulted institutional loans, 16% higher when compared to last year. The trailing twelve month default rate was flat at 2.4%, according to Fitch.
Secondary Market:
- Returns on leveraged loans dropped to 0.2% in February, taking YTD returns past 1.2%, according to the SP/LSTA LLI. An average of open-ended loan funds posted a meagre return of 0.03% in February, with returns for individual funds ranging from -0.32% to 0.32%.
- Secondary market levels stepped back in February with the average multi-quoted institutional TL down 11 bps to the 98.6 context, as broader capital markets volatility impacted loans. Year-to-date levels remain 21 bps higher since the beginning of the year.
- The share of multi-quote institutional loans priced in the par-plus area dropped to 74% at the end of February, with the share priced at or above 101 dropping to 7% (it was 13% the prior month). At the other end of the price scale, 5% of credits are bid below 90 cents on the dollar, flat month-over-month.
- The average bid on the European Leveraged 40 dropped 12 bps in February to the 99.86 context. Levels are up 20 bps since the start of the year.
- Despite the return of volatility in February, dropping the average bid on high-yield bonds down to the 98.7 context, the market showed its resilience and rebounded to finish the month in the 99.4 context, according to the Bank of America Merrill Lynch High-Yield Bond Index. Yields jumped 36 bps to finished February at 6.2%, the widest level since December of 2016.
CLOs/Loan Funds:
- CLO new issue volume jumped to $14.3 billion in February and stands at $21 billion year-to-date – the busiest start to the CLO market on record, eclipsing the $9.1 billion recorded over the first two months of last year.
- In contrast to new issue, CLO reset and refinancing activity declined in February with $5.9 billion in resets/reissues and $2.6 billion in refinancings. Resets continue to outpace refinancing activity, as the number of Crescent-letter eligible deals shrinks.
- European new issue CLOs had their second busiest month on record, with €2.9 billion of volume spread over 7 deals. Year-to-date volume stands at €3.7 billion, compared to €1.2 billion recorded over the first two months of last year.
- There was €1.6 billion of combined refinancing and reset activity in the European CLO market for February. This was made up of €1.3 billion in reset volume and €370 million in refinancings.
- Average DMs on CLO AAA liabilities continue to trend lower to 104 bps for U.S. BSL CLOs.
- Assets under management stand at $511 billion for U.S. CLOs and €76 billion for European CLOs.
- According to the most recently available data, loan and HY fund flows diverged again in February, with loans registering a larger inflow of $970 million and HY bonds suffered a huge outflow of $10.4 billion (the largest monthly outflow since December 2015). HY bond funds lagged, as positive economic news brought worries the Fed may accelerate interest rate hikes.
- Breaking loan funds out by their ETF and mutual fund categories, the latter saw the lion’s share of demand in February with an inflow of $870 million, while ETFs registered $100 million in flows, according to the most recently available data.
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