It was a light slate of leveraged finance issuance last week as loan and high yield bond players alike navigate an unsettled market while keeping watch on debt issuers such as Valeant, which helped put the entire pharmaceutical segment under a spotlight.
On the leveraged loan side just four issuers braved the market with deals totaling $2.1 billion, down from a relatively healthy $8.7 billion the previous week. Much of the market is focusing on loans already launched into syndication, with many undergoing ‘price-discovery’, and subsequent changes.
“Few deals made it to the finish line unscathed,” writes LCD’s Chris Donnelly. “Virtually all the action was in clean-up.”
With the unsettled atmosphere – and with continued demand for higher-rated credits – yields on lower-rated loans (those stamped B+ or B by S&P) now are yielding 5.91% in the new-issue market, up from 5.8% the previous week, according to S&P Capital IQ LCD. Higher-rated credits (BB) continue to yield 4.23%.
The leveraged loan price discovery comes as investors continue to take cash out of the asset class. Indeed, U.S. loan funds last week saw their 13th straight withdrawal, totaling $5.6 billion.
As well, assets under management at U.S. loan funds recently hit a 28-month low. Year to date, U.S. leveraged loan volume totals $369 billion, compared to $476 billion at this point in 2014. The choppy high yield bond market continues to plod along with a thin $1.8 billion in new issuance last week. That’s actually up from each of the previous three weeks (including a rare issuance-free week).
At the current pace, October will be the slowest month of the year for the asset class. There has been $3.7 billion in issuance so far this month, says LCD’s Matt Fuller. Year-to-date U.S. issuance is $229 billion, down 15% from the pace seen in 2014.
One potential bright spot: U.S. investors poured a whopping $3.3 billion into high yield funds last week, the most since 2011.