November 7, 2017

Thomson Reuters LPC Leveraged Loan Monthly – October 2017

by Hugo Pereira

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:

  • October leveraged loan issuance increased $10 billion over the previous month to $80 billion, taking year-to-date volume to $1.07 trillion or 53% higher compared to the previous year. The growth in lending has been driven by a surge in institutional issuance which stands at $691 billion YTD compared to $313 billion over the same period last year.
  • Institutional issuance added $44 billion in October, taking volume this year to $695 billion, eclipsing the $319 billion recorded over the same period last year. Similarly, high-yield bond issuance stands at $237 billion year-to-date, which is 23% higher compared to last year.
  • After a surge of new money in September, institutional volume reverted to the trend this year and was driven by refinancing activity, with the share of new money making up 47% of issuance in October. Year-to-date, new money’s share of issuance stands at 33%, compared to a 51% share over the same time last year.
  • Institutional outstandings rose marginally in October, up $1 billion to $939 billion. So far this year, the size of the institutional market has increased by $59 billion.
  • After the busiest month of the year, M&A leveraged issuance dropped to $29 billion in October, taking year-to-date volume to $249 billion, 12% higher year-over-year. The increase in volume has been driven by LBO issuance: $148 billion vs $65 billion through October of last year.
  • Middle market issuance added $7.9 billion of volume in October, taking year-to-date volume to $122 billion. Lending to the large middle market has made up the bulk (80%) of middle market issuance this year.
  • European leveraged loan issuance stands at $195 billion year-to-date, or 25% ahead of last year’s levels. Issuance has been driven by an increase in refinancing activity, $124 billion for a 63% share, compared to $70 billion over the same time last year. At $70 billion, year-to-date new money issuance has declined 5%.
  • There were four defaulters in October with $1.8 billion of institutional loans. Year-to-date, institutional loan default volume stands at $18.2 billion. The trailing twelve month loan default rate has ticked up to 1.9%.

Secondary Market:

  • Leveraged loans posted a return of 0.6% in October, according to the SP/LSTA LLI, while open-ended loan funds recorded a 0.56% return. Year-to-date, the index is up 3.6% while loan funds have returned on average 3.15%.
  • In the secondary market, average bids for multi-quote institutional loans declined 6 bps in October to 98.12. They are risen by over a point since the beginning of the year. The flow-name Smi100 ended the month at 98.53.
  • Over the course of the month, the share of loans priced at or above 101 ticked up to 7% while the share priced at or above par increased to 67%.
  • The European flow name Lev40 was flat in October, ending the month in the 100.37 context. The European market remains highly bid, and prices have declined10 bps since the beginning of the year.
  • Yields in the U.S. high-yield bond market edged higher in October ending the month at 5.5%, according to the Bank of America Merrill Lynch High Yield Index. Yields have tightened 64 bps so far this year.

Thomson Reuters LPC is the one source for comprehensive coverage of the syndicated loan markets worldwide.

CLOs / Loan Funds:

  • CLO new issue volume stands at $12.8 billion in October, taking year-to-date issuance to $95 billion, outpacing new issue activity from last year and just behind record levels set in 2014.
  • After declining for each of the prior three month, CLO reset and refinancing activity picked up in October with $8.4 billion in resets and $6.4 billion in refinancings, adding up to $14.6 billion in combined activity. Year-to-date there has been $47 billion of resets and $95 billion of refinancings.
  • Three new issue CLOs totalling €1.3 billion priced in October taking YTD volume to €13.3 billion spread over 34 deals. Issuance levels this year remain closely in line with volume recorded over the same period last year.
  • There was €1.9 billion of combined refinancing and reset activity in the European CLO market in October. This was split with €950 million in reset volume and €900 million of refinancings. Year-to-date combined refinancing and reset volume stands at €22.5 billion.
  • In October, U.S. CLO AAA discount margins stand at 120 bps, DMs for European CLOs stand at 83 bps.
  • Assets under management are now at $481 billion for U.S. CLOs and €70 billion for European CLOs.
  • Retail loan funds recorded a small outflow of $26 million in October. For the year-to-date, funds have recorded $16.5 billion of inflows although net flows have been negligible since the third quarter. HY bond funds reversed and  posted a relatively small outflow of $200 million in October. YTD outflows stand at $12 billion.
  • Breaking out loan fund flows into the mutual fund and ETF categories, mutual funds lost $560 million while ETFs pulled in $530 million in October. Year to date, mutual funds have pulled in $12 billion while ETFs have added approximately $4.5 billion.

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