December 8, 2017

Leveraged Loan Monthly – November 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:

  • Leveraged lending in November increased to its highest level since the first quarter, taking year-to-date volume past $1.22 trillion or 59% higher compared to the previous year. The jump in activity was driven by institutional issuance, which was double the previous month and stands at $817 billion YTD compared to $353 billion over the same period last year.
  • Institutional issuance jumped in November to its highest level this year, taking year-to-date volume to $825 billion, eclipsing the $359 billion recorded over the same period last year. Similarly, high-yield bond issuance stands at $264 billion year-to-date, which is 26% higher compared to last year.
  • Drilling down into the drivers of institutional new money issuance: one third of year-to-date volume has been driven by LBO activity, while non-LBO M&A activity made up 40% share. Despite the high level of refinancing activity, institutional new money issuance is up 43% year-over-year.
  • Institutional outstandings rose $14.8 billion in November to $954 billion. So far this year, the size of the institutional market has increased by $73.6 billion.
  • M&A leveraged issuance dropped to $16 billion in November, taking year-to-date volume past $270 billion, or 10% higher year-over-year.
  • Year-to-date middle market lending currently stands at $134 billion. Lending to the large middle market makes up 80% of middle market issuance so far this year.
  • November had the highest default activity all year with seven defaults for a total of $5.6 billion of institutional loans. The trailing twelve month loan default rate ticked up to 2.3%. Year-to-date, institutional loan default volume stands at almost $24 billion.Thomson Reuters LPC is the one source for comprehensive coverage of the syndicated loan markets worldwide.

Secondary Market:

  • Leveraged loans posted a return of 0.12% in November, according to the SP/LSTA LLI, while open-ended loan funds recorded a 0.11% return. Year-to-date, the index is up 3.7% while loan funds have returned on average 3.26%.
  • In the secondary market, average bids for multi-quote institutional loans declined 21 bps in November to 97.9 context. Average prices have risen 82 bps since the beginning of the year. The flow-name Smi100 ended the month at 98.73.
  • Over the course of the month, the share of loans priced at or above par ticked down to 65% while the share priced at or above 101 was flat at 7%.
  • The European flow name Lev40 declined 26 bps in November, ending the month in the 100.11 context. Although the European market remains highly bid, prices have declined 35 bps since the beginning of the year.
  • Yields in the U.S. high-yield bond market rose above 6% in November before tightening and ending the month at 5.8% (25 bps wider), according to the Bank of America Merrill Lynch High Yield Index. Yields have tightened 40 bps so far this year.

CLOs / Loan Funds:

  • CLO new issue volume remained robust in November, adding $12.9 billion in volume, taking year-to-date issuance to $108 billion. New issue activity has outpaced volumes from the last two years, just trailing the record levels set in 2014
  • CLO reset and refinancing activity declined in November with $6.1 billion in resets and $3 billion in refinancings. Year-to-date there has been $53 billion of resets and $98 billion in refinancing activity.
  • European new issue CLO activity jumped to €4.7 billion in November, taking YTD volume to €18 billion spread over 45 deals. Issuance levels this year are now 16% ahead of last year’s volume.
  • There was €1.2 billion of combined refinancing and reset activity in the European CLO market in November. This was composed of €805 million in refi volume and €422 million in reset volume. Combined year-to-date refinancing and reset volume stands at €23.7 billion.
  • In November, U.S. CLO AAA discount margins stand at 116 bps, DMs for European CLOs stand at 76 bps.
  • Assets under management stand at $491 billion for U.S. CLOs and €75 billion for European CLOs.
  • Based on the most recent data available, retail loan outflows accelerated to $2.6 billion in November. For the year-to-date, funds have recorded $13.9 billion of inflows although net flows have been negative since August. HY bond funds also posted a larger outflow of $4.9 billion in November, taking YTD outflows past $17.6 billion.
  • Breaking out loan fund flows into the mutual fund and ETF categories: mutual funds lost $2 billion while ETFs recorded $500 million in outflows in November. Year to date, mutual funds have pulled in $9.9 billion while ETFs have added approximately $4 billion.Download the full report

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