US Leveraged Finance Market Analysis – February 2011

The 2011 leveraged finance market kicked off the year with a wild ride (for investors, anyway). Cash inflows are swamping syndicated loan activity, with pricing plummeting as a result. Included in the analysis: M&A deals v. inflows; ‘reverse-flex’ activity; loan returns; default rates; much more …

Welcome to mcgraw-hill financial’s february loan market overview clip i’m steve miller a member of the leveraged data and commentary team this month we’ll focus on the loan market’s red-hot technical conditions which have pushed up secondary prices while thinning new issue yields for real-time updates on the loan market please follow lcd on twitter facebook and

Linkedin as well you can download this presentation on before we start here’s our standard disclaimer the loan market got off to a fast start in january propelled by strong technical conditions prices pushed higher and new issue clearing levels sank the market’s technical strength was driven in part by record inflows into the loan mutual funds which

Reached 4 billion dollars in january according to lipper fmi the other side of this equation was weak volume with lbo related financing disappointing in january a theme that seems likely to continue for the rest of the first quarter the combination of bountiful inflows and weak new money deal flow drove the market to post credit crunch heights the s p lsd index for

Instance gained two percent in january as the average loan price climbed 1.7 percentage points to a three-year high of 97.1 this chart shows clearly why the loan market has been in the words of sportscenter and fuego the past few months it’s a matter of simple economics new inflows from mutual fund subscriptions clo issuance and repayments are running far ahead of

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M a related loan volume issuers have taken advantage of this imbalance to reprice lower existing loans in finance dividends the impact on the secondary has been significant lcd’s flow name composite depicted here is a price measure of the 15 largest most liquid institutional loans by the end of january the average price of this composite reached a post 2007 high

Of 98.2 up from 96.3 at year end with the markets aflame issuers are having a field day as the graph on the left shows the ranges in january cut the spread of nearly half the new loans from original price talk in response to overwhelming demand as a result the average new issue clearing yield of first lien loans dropped to six percent the lowest level since the

New issue market reopened for regular way business in the fall of 2009. the decline was across the board with libor floors dropping original issue discounts under pressure and spreads narrowing another theme of today’s red hot market is the return of covenant light loans bolstered by such big deals as del monte j crew and transdime the volume of concurrence test

Only paper jumped to a 26 percent of overall first lien institutional loan volume in january that compares to just five percent last year needless to say this trend reflects the fact that the price of maintenance covenants is melting against the market’s technical heat as a result many traditional loan managers that had for sworn covenant light structures during

The down turn are reluctantly re-embracing these loans as a concession to today’s turbocharged technical environment loan default rates fell to a 33-month low of 1.5 percent in january from 1.9 percent at year end this puts the rate at far below the peaks of 2009 and at less than half the historical average with the economy again on solid footing and the markets

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Extremely liquid most players expect default rates to stay low in 2011 at between one and three percent that is of course unless the market is rocked by an exogenous event looking ahead most participants expect the same strong technical conditions that drove the market in january to persist in the near term until the long hope for spike in lbo activity materializes

Or the market is buffeted by an outside shock accounts will likely be fighting a rear guard campaign against further concessions to issuers for now though issuers are firmly in the driver’s seat steering the loan market towards lower spreads better terms and what’s rapidly turning into a broad base re pricing wave on the plus side default rates continue to sink as

The market’s overall credit profile improves in light of higher corporate earnings and vast liquidity well this 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 each is in the description of this video as mentioned you can also download this presentation at

Transcribed from video
US Leveraged Finance Market Analysis – February 2011 By LCDcomps