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September 8, 2017

Thomson Reuters LPC Leveraged Loan Monthly – August 2017

by Hugo Pereira.


  • 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:

  • Year-to-date leveraged loan issuance is approaching $900 billion, outstripping the $508 billion posted over the same period last year. Refinancing activity has driven lending activity for most of this year, with a larger share of institutional volume this year: 67% vs 43% last year.
  • Institutional loan issuance stands at $608 billion year-to-date, eclipsing the $222 billion of volume recorded over the same period last year. U.S. high yield bonds added $18 billion of volume in August, taking YTD volume past $180 billion. YTD HY bond issuance is running 19% ahead of last year.
  • Refinancing activity remains the driving force behind U.S. institutional issuance this year with $426 billion in volume for a 70% share. The new-money share of institutional volume continues to tick up to and made up 42% in August.
  • The size of the institutional loan market increased $2.3 billion to $939 billion in August. Outstandings have increased by over $49 billion this year.
  • M&A leveraged loan volume stands at $189 billion YTD, down 12% from the $168 billion recorded over the same period last year. Non-LBO activity is down 6% over last year while LBO volume has increased by 53%.
  • Middle market lending volume stands at $94 billion year-to-date, with large middle market making up 80% of volume and traditional middle market adding $18 billion in volume.
  • There were no defaults recorded in August. Year-to-date, institutional loan default volume stands at $15.2 billion, while the trailing twelve month loan default rate dipped to 1.7%.

Secondary Market:

  • The leveraged loan asset class posted negative returns in August with the SP/LSTA LLI recording a -0.04% return and open-ended loan funds -0.16%. Year-to-date, the index is up 2.51% and loan funds 1.95%.
  • Secondary market levels dropped in August with flow names down 35 bps to 98.57 and multi-quote institutional term loans ending the month flat at 98.
  • Using another measure, the share of loans bid in the par-plus area decreased to 60%, from 65% a month ago. At this point last year, the par-plus share stood at 32%. The 101-plus share also decreased to 5%.
  • The European flow name Lev40 declined 19 bps in August to end the month at 100.34. Although average levels for European flow names have increased over the past year, they are down12 bps since the beginning of the year.
  • After reaching the 102 mark, average bids dropped to 100.9 only to rebound later in the month and end August at 101.36, sending the yield for U.S. high-yield bonds higher 16 bps to 5.61%, according to the Bank of America Merrill Lynch High Yield Index. Yields have tightened by 56 bps so far this year.

CLOs/Loan Funds:

  • CLO new issue rebounded in August to make it the second-busiest month so far this year, with $11.9 billion in volume, taking YTD volume past $72.25 billion. Volume so far this year has equalled 2016’s total new issuance volume with four months left in the year.
  • There was $8.6 billion of refinancing activity in August with $2.4 billion in refinancings spread over 6 deals, and $6.2 billion in reset activity from 12 deals. YTD, there has been over $120 billion of combined refinancing and reset activity.
  • CLO AAA discount margins ticked down in August to an average of 124 bps (based on deals where discount margins were available).
  • Two new issue CLOs totalling €778 million priced in the European market in August taking YTD volume to €10.4 billion spread over 27 deals, in line with the €10 billion of recorded volume over the same period last year.
  • There was €1.3 billion of combined refinancing and reset activity in the European CLO market in August. This was split with €847 million in reset volume and €472 million of refinancings. Year-to-date combined refinancing and reset volume stands at €18 billion.
  • On light volume, CLO AAA discount margins ticked lower in August to an average of 89 bps (based on deals where discount margins were available.
  • Assets under management are now at $464 billion for U.S. CLOs and €70 billion for European CLOs.
  • Retail loan funds recorded $490 million of outflows in August (based on funds that report weekly). For Year-to-date, funds have recorded $17 billion of inflows. HY bond funds posted a large outflow of $3.35 billion for the month (based on funds that report weekly), pushing YTD outflows to almost $13 billion.

Loan mutual fund & ETF assets under management (market value) ended August at $155 billion.

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