Yields on new-issue leveraged loans increased during 2014’s third quarter amid an overall drop in volume and continued withdrawals of investor cash from the market.
On higher-rated double-B loans, for instance, the clearing yield rose to 4.23% during the third quarter from 4.16% in the second, and from a thin 3.56% in the first.
Lower-rated single--B loans cleared the new-issue market with an average yield of 5.53%, up from 5.48% in the second quarter and from 4.89% in the first.
The harsher tone in the U.S. market was evident over the past few months. Indeed, the landscape was hardly conducive for opportunistic deals, such as refinancings and dividend/recaps, which have provided the bulk of activity for much of the past few years, writes LCD’s Steve Miller. The market softened as retail investors pulled an estimated $9.4 billion from loan mutual funds, according to Lipper FMI and fund filings, the biggest quarterly redemption since LCD began tracking this data in 2001, says Miller. That left the vibrant (but higher-cost) CLO market to bridge the gap.
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