February 2012, US Leveraged Loan Market Analysis

The US leveraged loan market started off 2012 with a tailwind, as technicals improved. Accounts expect the positive tone to continue over the next few months.

Welcome to s p capital iq’s monthly loan market overview clip i’m steve miller a member of the leverage commentary and data team over the next few minutes we’ll review recent market trends and discuss the outlook for february in preview the market’s technical bias improved further in january sending secondary prices higher and new issue clearing yields lower looking

Ahead most players expect the market to retain a healthy tone assuming away an exogenous shock from europe or some other quarter the s p lsta index climbed 2.2 percent in january its best monthly performance since october in part the market rode the overall bull wave that carried the s p 500 up 4.5 closer to home demand for loans simply outran supply supply was

Light indeed in january arrangers closed just 5.6 billion of new institutional loans the lowest figure since september that was hardly enough in fact to replace loans that have repaid not to mention keep pace with new inflows of course tone is said as much by expectations as current conditions here too the view appears bullish though the forward calendars filled

In a bit in recent weeks late january brought a spike in liquidity in the form of bond takeouts lcd news reported on no fewer than nine such executions totaling 2.6 billion dollars that follows a near six-month drought of bonds issued to repay institutional loans these trends explain why the average bid of lcd’s flow name composite a measure of the 15 most liquid

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Loans in the market rose four points to 97.6 between year end and january 31st the rally was most pronounced at the distressed end of the spectrum where the prospective returns and potential risks are greatest the same pattern was true for the broader index where defaulted loans ripped the cover off the ball in january posting an 8.4 percent return in the new

Issue market the story was similar with too many dollars chasing too few deals average clearing yields for regular way loans saying to a six-month low of 6.1 percent from six point eight percent in december drilling down double b loans generally cleared in a four point five to five percent range while single b loans printed in a five point five to six point five

Percent banned the strength of the u.s market brought forth a spike in yankee bonds and loans from european issuers facing challenging conditions at home in all european issuers announced 13 billion dollars of u.s dollar financing far and away the most ever participants think this trend will persist what with the eu’s long debt crisis weighing on the capital

Markets there and regulatory uncertainty keeping european clo issuance and bank lending in check the loan default rate inched up to 21 basis points in january from a near record low of 17 basis points at year end as mentioned last month managers expect the rate to rise to around 2 percent in 2012. needless to say if the eu situation deteriorates all bets will be

Off to wrap up a few final points as mentioned earlier m a driven activity remains light with lbo deal making stuck in first gear instead issuers are focused on opportunistic transactions for january for instance dividend-related financing popped to a six-month high of nearly two billion dollars likewise issuers announced high-yield takeouts that will pay 2.6

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Billion dollars of institutional loans the most since last may and community health and caesars breathed new life into the amend to extend trade the clo market gained more traction in january all told three managers inked 1.1 billion dollars of new vehicles the latest deal of 410 million dollar execution from lcm was particularly encouraging because its triple a

Tranche cleared at a recent low of 148 basis points over libor amid declining funding costs managers say there are now about a dozen clo’s in market the most since two thousand seven while nobody’s expecting a surge of issuance anytime soon the prospects for a steady pace of one to one and a half billion dollars a month in new vehicles seems good for now finally

As mentioned a growing number of european issuers are taking advantage of muscular demand from u s accounts to issue yankee bonds and loans at lower yields and those available in their home markets that brings us to the end of our overview for more information on the loan market you can check in with us on the web or via linkedin twitter or facebook the links for

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Transcribed from video
February 2012, US Leveraged Loan Market Analysis By LCDcomps