May 9, 2018

Thomson Reuters LPC Leveraged Loans Monthly – April 2018

by Hugo Pereira

Thomson Reuters LPC

Leveraged Loan Monthly – April 2018

Contents:

  • Leveraged Loan Market Overview
  • U.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 stands at $362 billion year-to-date, with institutional volume making up 69% of activity at $251 billion. Although issuance levels are down 30% from last year, the institutional share has stood firm at around 70%.
  • Looking at leveraged lending by purpose, refinancing activity drove activity in the first quarter and continues to make up the bulk of volume early in the second quarter. New money activity made up 30% of volume in April.
  • Year-to-date institutional issuance stands at $254 billion, or 30% below last year’s levels. High-yield bond issuance is down 27% YoY, with $78.4 billion of volume recorded so far this year.
  • Looking at the drivers behind institutional issuance, 31% of issuance year-to-date was new-money, compared to 25% a year-ago and one-third in 1Q18. Overall, institutional new money levels are down 14% year-over-year.
  • After the March default of iHeartCommunications’ $6.3 billion in loans, default activity dropped in April to $727 million, lowering the trailing twelve-month default rate to 2.6%, according to Fitch. There has been $12.6 billion in defaulted par so far this year, compared to $9.7 billion a year ago.

Secondary Market:

  • Institutional outstandings finished April at record territory, crossing the $1 trillion threshold for the first time at $1.006 trillion. Outstandings have increased by $50 billion since the start of the year
  • Leveraged loan returns were flat in March at 0.41%, taking YTD returns past 1.87%, according to the SP/LSTA LLI. Loan returns are outpacing the 1.6% returned through April of last year. Open-ended loan funds posted average returns of 0.41% in April, with returns for individual funds ranging from 0.03% to 0.67%. On average, open-ended funds have returned 1.55% year-to-date.
  • The average multi-quoted institutional TL declined 22 bps in April to the 98.5 context. Average marks are 15 bps higher since the start of the year.
  • The share of multi-quote institutional loans priced in the par-plus area stands at 72% at the end of April, with the share priced at or above 101 flat over the previous month at 7%. At the other end of the price scale, 5% of credits are bid below 90 cents on the dollar.
  • The average bid on the European Leveraged 40 increased 26 bps in April to the 99.8 context. Levels have rebounded and sit 10 bps higher since the start of the year.
  • After tightening during last month, HY bond yields finished April flat over the previous month at 6.3%, according to the Bank of America Merrill Lynch High-Yield Bond Index. Yields have jumped 51 bps since the start of the year.

CLOs/Loan Funds:

  • New-issue CLO activity added $10.9 billion of volume in April and stands at $42.8 billion year-to-date. Year-to-date volume is 55% ahead of last year’s.
  • CLO reset and refinancing overtook new issue activity in April with $15.3 billion in resets/reissues and $3.7 billion in refinancings. There has been close to $50 billion in combined refi and reset/reissue activity so far this year with resets making up a larger share of volume.
  • European new issue CLO volume was flat month-over-month with €2.5 billion of paper in April. Year-to-date volume stands at €8.7 billion, compared to €4.4 billion a year ago. Combined reset and refinancing activity amounted to €6.4 billion year-to-date
  • Assets under management rose to $526 billion for U.S. CLOs and €79.5 billion for European CLOs.
  • Average DMs on CLO AAA liabilities widened in April to 103 bps for U.S. CLOs and 80 bps for European CLOs.
  • According to the most recently available data, high-yield funds recorded an inflow of $1.5 billion in April, the first inflow since September of last year. HY funds have registered $18.3 billion in outflows so far this year. Leveraged loans pulled in $2.4 billion in April and $7.2 billion so far this year, as the rising-rate environment draws investors to the floating-rate products.

Breaking loan funds out by their ETF and mutual fund categories, the latter saw the lion’s share of demand so far this year, with inflows of $6.1 billion. ETFs have registered $1.125 billion of inflows year-to-date, according to the most recently available data.

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