May 23, 2014
A sharp fall in volume, tougher terms and investor push-back appear.
More signs that the leveraged loan market is cooling have appeared. The volume of new US loans last week was only $5.4 billion, down from $14 billion in each of the previous two weeks, according to S&P Capital IQ. This follows a sizeable retail outflow of $1.2 billion from loan mutual funds in April – the first monthly outflow in two years – which contributed to a quarter-point drop in the average price of a loan, S&P reports.
More signs that the leveraged loan market is cooling have appeared. The volume of new US loans last week was only $5.4 billion, down from $14 billion in each of the previous two weeks, according to S&P Capital IQ. This follows a sizeable retail outflow of $1.2 billion from loan mutual funds in April – the first monthly outflow in two years – which contributed to a quarter-point drop in the average price of a loan, S&P reports.
Investors are beginning to push back against the poor terms they have been getting in the market. Last Friday, in what S&P calls a “major trend shift,” three out of four market flexes were in favor of investors, not borrowers. A market flex provision in a loan allows the underwriter to change the interest rate during syndication. Most recent flexes have been downward – meaning they have favored the borrower.
And in what might be a tell in the wind or just a bit of bad luck, the US high yield market saw its first scrapped deal of 2014 on May 21. Trinidad Cement postponed a $325 million offering until market conditions are more favorable. S&P reports that there were 15 postponed or withdrawn deals, totaling $4.9 billion, in all last year.