Dose of rates realism, September 2–6 (Part 8 of 9)
Small week for leveraged loans
Last week, the leveraged loan market volume slowed to a drip. A mere $1.5 billion priced across five deals, though one deal dominated the issuance.
Half of the volume was Freescale’s $800 million Term Loan B, whose proceeds refinanced secured bonds maturing in 2018. Investors were so hyped about the new seven-year loan that its initial $300 million offering size more than doubled.
Freescale, the Austin–based semiconductor company, had just tapped the market last February, when it raised a short three-year $350 million loan and a seven-year $2.4 billion Term Loan.
All the other loans, with the exception of a small $120 million TLB by NXT Capital, were also refinancings.
While there were few actual deals priced, there were 24 deals announced last week. Out of these new deals announced, two-thirds relate to acquisitions, further showing improvement in capital market conditions.
As was the case in the high yield bond market (HYG), the refinancing volume for loans dropped as yields expanded and markets recovered. The increased M&A (mergers and acquisitions) activity points to a stronger economy, which strengthens the equities markets as well, causing investors to shift their interest into equities.
However, as long as the pipeline remains robust, loans may offer an attractive low-volatility alternative that should benefit as rates start to increase. Fund flows continue to show investors’ preference for loans over investment-grade (BND) and high yield bonds (JNK). Read on to learn about loan fund flows ahead.
Browse this series on Market Realist:
- Part 1 - Yield curve continues steepening, disappointing expectations
- Part 2 - Why budget talks and Syria friction add noise to bond yields
- Part 3 - Fixed income markets awaken after summer’s end