Investors start to push back as loan returns set all time lows.
The leveraged loan market is still frothing with activity. But there are some signs that it could start pricing credit more appropriately sometime soon.
Massive demand from risk- and yield-seeking institutional investors have squeezed returns so far this year to 1.72 percent, down from 3.22 percent in the same period last year, according to Leveraged Commentary and Data. Total assets under management in loan mutual funds have reached $100 billion for the first time, according to LCD.
LCD reports that over a dozen deals have been scrapped in the past two weeks, including deals for Leslie’s Poolmart, MGM Resorts, Serta Simmons, Houghton International and Acosta. And many deals are going to market with “reverse flex” provisions that allow the borrowers to increase the interest rate as necessary to draw demand in syndication.
Even so, the record low returns on loans so far this year reflect substantial investor risk tolerance. As with the equity markets, the loan markets have absorbed a string of bad news and still kept ticking along.