October 10, 2018

Leveraged Loans Monthly – US: September 2018

by Hugo.

Leveraged Loan Monthly – September 2018

The September 2018 edition of LPC’s Leveraged Loan Monthly is now available for download on LoanConnector & LC Reports.

Contents:

  • Leveraged Loan Market Overview
  • US High Yield Bond Market Overview
  • Investor Overview and Fund Flows
  • CLO Market Analysis
  • CLO League Tables
  • List of Recent CLOs

Primary Market:

  • Leveraged loan activity declined in the third quarter, registering $177 billion of volume, a decline of 40% compared to 3Q17’s record pace of volume. YTD leveraged issuance is tracking at $930 billion, which is 12% lower relative to last year. The institutional share of leveraged issuance has ticked down to 58% in 3Q compared to 60% in the prior quarter. Headline volume declined in 3Q in line with a pull-back in refinancing activity, as new money issuance in the form of several jumbo loan packages priced.
  • At $103 billion, 3Q18 institutional loan issuance declined 42% YoY but continues to outpace high-yield bonds. 3Q HY bond issuance declined to $40.7 billion and was $20 billion lower compared to last year. HY bonds made up 20% of overall YTD high-yield and leveraged issuance; it was 23% a year ago.
  • Despite lower headline issuance numbers, new money’s share of institutional jumped to 77% in 3Q, from a 35% share over the first half of 2018. Investor push-back on aggressive refinancings combined with increased new-money deals in the form of a few jumbo LBO-transactions drove activity in the third quarter.
  • High demand for loan assets meant that institutional loan flexes remained in favor of borrowers by a ratio of 11:1 in September with the average downward flex at 52 bps.
  • The credit picture remains benign with no default activity for a second-straight month, pushing the trailing twelve month default rate lower to 2.2%. There has been $16.65 billion of defaulted par year-to-date with $6.3 billion concentrated in iHeartCommunications’ March filing.

Secondary Market:

  • Leveraged loans posted a 0.69% return in September, according to the S&P/LSTA LLI. Returns in the third quarter increased to 1.84%, taking year-to-date returns past 4%, higher than the 2.97% posted over the same period last year. Average returns for open-ended loan funds also increased to 0.59% in September and stand at 3.4% year-to-date.The average price for multi-quoted institutional term-loans ticked 18 bps higher in September to 98.41. The average mark for all institutional loans was also up 10bps in September to 98.4.
  • The share of multi-quote institutional loans priced in the par-plus area increased to 61% at the end of August. The share priced at or above 101 stands at 3%. At the other end of the spectrum, 4% of credits are bid below 90 cents on the dollar. On a dollar-weighted basis, the par plus percentage stands at 64%.
  • Institutional outstandings ended September at $1.089 trillion. Outstandings have increased by $134 billion, or 14%, so far this year.
  • High-yield bond yields were range-bound and ended September in the 6.2% range. After jumping in the first quarter of the year, yields remain 46bps wider since the start of the year but have declined 15 bps in the third quarter.

CLOs/Loan Funds:

  • September CLO new-issue activity fell $5.15 billion from August levels to $8.47 billion over 17 deals, echoing a dip in volume during the same period in 2017. YTD 2018 CLO volume stands at $99.82 billion, a 22% uptick (~$18bn) from 2017 volume over the same period. Market expectations of a solid 4Q2018 all but ensure that 2018 total volume will surpass 2017 total year number of $117.2 billion, with some estimates in the $140-150 billion range.
  • CLO repricing activity declined sharply in September with $8.42 billion total volume of resets and reissues. 5 deals were refinanced with AAA pricing at 104-108bps, 12 deals were reset with AAA pricing from 111-123bps, and 2 deals were reissued with AAA pricing from 112-114bps. Year-to-date, there has been a combined $119.1 billion in repricing activity, outpacing new-issue volume but behind the repricing activity recorded over the same period last year.
  • The European CLO market ticked up slightly in September with four new issues pricing for €1.6 billion. 2018 YTD volume stands at €20.4 billion, compared with €12 billion over the same period in 2017.
  • Assets under management rose to $567.5 billion for U.S. CLOs and €89.66 billion for European CLOs.
  • Average DMs on CLO AAA liabilities widened across both U.S. and European CLOs.
  • High-yield bond funds posted an outflow of $1.5 billion in September but recorded a small inflow for the third quarter, compared to huge outflows in the first half of the year. YTD outflows for HY bonds stand at $23.2 billion. By contrast, loans posted a small inflow of $768 million for September, taking YTD inflows past $15.6 billion, as investors continue to show a high level of demand for floating-rate loans.

Breaking loan funds out by their ETF and mutual fund categories, ETFs have registered inflows of $1.1 billion, which has been shadowed by the $14.5 billion of inflows into loan mutual funds

Download the full report


Find out more about Thomson Reuters LPC the premier global provider of syndicated loan and high yield bond market information, keeping you on top of trading trends and investment decisions.

 

Report Topics

Get In Touch

Subscribe

Related Reports

Thomson Reuters LPC Leveraged Loan Monthly – April 2018 Contents: Leveraged ...

Thomson Reuters LPC Leveraged Loan Monthly – March 2018 Contents: Leveraged ...

Thomson Reuters LPC Leveraged Loan Monthly – February 2018 Contents: ...

Contents: Leveraged Loan Market Overview S. High Yield Bond Market Overview ...