Leveraged Loan Monthly – September 2018
The September 2018 edition of LPC’s Leveraged Loan Monthly is now available for download on LoanConnector & LC Reports.
Contents:
- Leveraged Loan Market Overview
- US High Yield Bond Market Overview
- Investor Overview and Fund Flows
- CLO Market Analysis
- CLO League Tables
- List of Recent CLOs
Primary Market:
- Leveraged loan activity declined in the third quarter, registering $177 billion of volume, a decline of 40% compared to 3Q17’s record pace of volume. YTD leveraged issuance is tracking at $930 billion, which is 12% lower relative to last year. The institutional share of leveraged issuance has ticked down to 58% in 3Q compared to 60% in the prior quarter. Headline volume declined in 3Q in line with a pull-back in refinancing activity, as new money issuance in the form of several jumbo loan packages priced.
- At $103 billion, 3Q18 institutional loan issuance declined 42% YoY but continues to outpace high-yield bonds. 3Q HY bond issuance declined to $40.7 billion and was $20 billion lower compared to last year. HY bonds made up 20% of overall YTD high-yield and leveraged issuance; it was 23% a year ago.
- Despite lower headline issuance numbers, new money’s share of institutional jumped to 77% in 3Q, from a 35% share over the first half of 2018. Investor push-back on aggressive refinancings combined with increased new-money deals in the form of a few jumbo LBO-transactions drove activity in the third quarter.
- High demand for loan assets meant that institutional loan flexes remained in favor of borrowers by a ratio of 11:1 in September with the average downward flex at 52 bps.
- The credit picture remains benign with no default activity for a second-straight month, pushing the trailing twelve month default rate lower to 2.2%. There has been $16.65 billion of defaulted par year-to-date with $6.3 billion concentrated in iHeartCommunications’ March filing.
Secondary Market:
- Leveraged loans posted a 0.69% return in September, according to the S&P/LSTA LLI. Returns in the third quarter increased to 1.84%, taking year-to-date returns past 4%, higher than the 2.97% posted over the same period last year. Average returns for open-ended loan funds also increased to 0.59% in September and stand at 3.4% year-to-date.The average price for multi-quoted institutional term-loans ticked 18 bps higher in September to 98.41. The average mark for all institutional loans was also up 10bps in September to 98.4.
- The share of multi-quote institutional loans priced in the par-plus area increased to 61% at the end of August. The share priced at or above 101 stands at 3%. At the other end of the spectrum, 4% of credits are bid below 90 cents on the dollar. On a dollar-weighted basis, the par plus percentage stands at 64%.
- Institutional outstandings ended September at $1.089 trillion. Outstandings have increased by $134 billion, or 14%, so far this year.
- High-yield bond yields were range-bound and ended September in the 6.2% range. After jumping in the first quarter of the year, yields remain 46bps wider since the start of the year but have declined 15 bps in the third quarter.
CLOs/Loan Funds:
- September CLO new-issue activity fell $5.15 billion from August levels to $8.47 billion over 17 deals, echoing a dip in volume during the same period in 2017. YTD 2018 CLO volume stands at $99.82 billion, a 22% uptick (~$18bn) from 2017 volume over the same period. Market expectations of a solid 4Q2018 all but ensure that 2018 total volume will surpass 2017 total year number of $117.2 billion, with some estimates in the $140-150 billion range.
- CLO repricing activity declined sharply in September with $8.42 billion total volume of resets and reissues. 5 deals were refinanced with AAA pricing at 104-108bps, 12 deals were reset with AAA pricing from 111-123bps, and 2 deals were reissued with AAA pricing from 112-114bps. Year-to-date, there has been a combined $119.1 billion in repricing activity, outpacing new-issue volume but behind the repricing activity recorded over the same period last year.
- The European CLO market ticked up slightly in September with four new issues pricing for €1.6 billion. 2018 YTD volume stands at €20.4 billion, compared with €12 billion over the same period in 2017.
- Assets under management rose to $567.5 billion for U.S. CLOs and €89.66 billion for European CLOs.
- Average DMs on CLO AAA liabilities widened across both U.S. and European CLOs.
- High-yield bond funds posted an outflow of $1.5 billion in September but recorded a small inflow for the third quarter, compared to huge outflows in the first half of the year. YTD outflows for HY bonds stand at $23.2 billion. By contrast, loans posted a small inflow of $768 million for September, taking YTD inflows past $15.6 billion, as investors continue to show a high level of demand for floating-rate loans.
Breaking loan funds out by their ETF and mutual fund categories, ETFs have registered inflows of $1.1 billion, which has been shadowed by the $14.5 billion of inflows into loan mutual funds
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