February 7, 2018

Thomson Reuters LPC Leveraged Loan Monthly – January 2018

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:

  • After a year with record levels of issuance, leveraged lending recorded over $68 billion of volume in January, led by nearly $54 billion in leveraged institutional volume. January levels were down 27% when compared to the beginning of last year.
  • Refinancing activity continued to drive leveraged lending with almost $39 billion in volume; leveraged new money made up 43% of January issuance.
  • January institutional issuance was steady month-over-month with $56 billion in volume, (it was $59 billion the previous month). Institutional loan volume was down 27% when compared to January of last year.
  • At $22 billion, the new-money share of institutional issuance remained flat at 39% over the previous month; relative to a year-ago, the new money share of institutional volume is 20% higher. At $25 billion, M&A leveraged issuance was 8% higher over the previous month and $8.5 billion above levels recorded a year ago.
  • The energy sector remained in focus with two defaults in January. Altogether, there were three defaulters in January, amounting to over $4 billion in the par value of defaulted loans. The trailing twelve month default rate was flat at 2.4%, according to Fitch.

Secondary Market:

  • Leveraged loans posted a return of 0.96% in January, according to the SP/LSTA LLI. This marked the highest monthly return recorded since December of 2016, driven by a jump in secondary asset levels. Open ended loan funds posted a return of 0.90% in January.
  • Driven by a dearth of loan supply and high demand, the secondary market continued to trend up in the new-year with the average bid for multi-quote institutional loans up 23 bps in January to the 98.6 context. Average prices have rose 126 bps last year.
  • The share of multi-quote institutional loans priced in the par-plus area rose to 76% in January. It is 79% when measured on a dollar weighted basis. At the other end of the price scale, 5% of credits are bid below 90 cents on the dollar.
  • After softening in the second half of last year and falling below par, the average bid on the European Leveraged 40 rose 32 bps in January to the par context.
  • Yields in the U.S. high-yield bond market ended the month flat at 5.8%, according to the Bank of America Merrill Lynch High Yield Index. Yields tightened by 34 bps in 4Q of last year.

CLOs/Loan Funds:

  • CLOs picked up where they left off last year with $6.64 billion in new-issue volume in January, making it the busiest start to the year since 2013.
  • CLO reset and refinancing activity again outpaced new issue CLO volume in January with $11.2 billion in resets/reissues and $2.5 billion in refinancings. Resets have outpaced refinancing activity over the last seven months, as the number of “Crescent-letter” eligible deals shrinks.
  • Similar to past starts to the new-year, new issue European CLO activity was muted in January with one deal pricing for € 411 million.
  • There was €1.7 billion of combined refinancing and reset activity in the European CLO market for January. This was made up of €1.4 billion in reset/reissue volume and €360 million in refinancings.
  • DMs on CLO AAA liabilities continue to trend downward in the first month of 2018 to 106 bps for U.S. CLOs and 71 bps for European CLOs.
  • Assets under management stand at $501 billion for U.S. CLOs and €75 billion for European CLOs.
  • After posting outflows over the last three months, loan and high-yield bond funds diverged with HY funds posting an outflow of $3.3 billion in January, while loan funds recorded a small inflow of $600 million, according to the most recently available data.
  • According to the most recent available data, January saw small inflows into both loan ETFs ($130 million) and loan mutual funds ($480 million).

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