The U.S. leveraged loan market saw a tepid $20 billion in new issuance during February as big, billion-dollar-plus M&A transactions continue scarce.
With the recent activity, leveraged loan issuance so far in 2015 totals roughly $55 billion, down nearly 50% from the pace seen in 2014, according to S&P Capital IQ/LCD.
February was the fifth straight month that saw less than $20 billion of institutional volume, which generally comprises higher-priced loans sold to non-bank investors such as mutual funds and CLOs. During the first four months of 2014, in contrast, institutional issuance averaged more than $40 billion each month.
With the significant drop in leveraged loan volume come some unsurprising consequences. Most notable is the yield investors are seeing on the asset class, as detailed by LCD’s Chris Donnelly:
"With so little volume, pricing will inevitably come under pressure. The average yield-to-maturity on B-rated new-issue deals fell to 6.14%, versus 6.20% last week. And with better-rated issuers tapping the market, the average YTM on BB new-issue deals is 4.47% after several weeks of an insufficient sample."
Activity is not expected to pick up in the near-term, Donnelly adds.
For more news, analysis on the leveraged loan and high yield bond markets check out LCD’s free websites promoting the asset classes: