Why were leveraged loan issuances for last week so feeble?
Why last week ended with below-par data and higher bond issuance (Part 3 of 4)
Unvoiced floating rate week
The leveraged loan (BKLN) issuance calendar for the week remained busy, with 18 deals announced last week. The volume totaled $19.7 billion in new issuance. The deals were slightly lower than the previous week, which brought mostly mergers and acquisitions (M&A).
Last week saw a wide array of deals. Repricing remained low, as investors focused on new money deals. Dividend recapitalization deals and M&A were also less than the previous week amid concern due to weaker-than-expected economic data. Investors remained skeptical about the spike in the long-term interest rate, as the Fed’s next taper is expected this month.
Last week, we saw some pull-back on institutional loans with the covenant-lite clause. Covenant-lite loans lack certain contractual and structural protections traditionally embedded in high-risk financial instruments. So in the event of any adverse developments, such as a default or financial restructuring, the investor may experience larger principal losses. Issuers favor covenant-lite loans due to their less stringent policies, but investors need to remain cautious and check on the issuer’s financial stability time and again to avoid surprises.
The S&P/LSTA U.S. Leveraged Loan 100 Index, which tracks loans in the B to BB rated category, declined 0.1%. However, the index was up 0.3% from December’s end. The decline in the index was driven by soft unemployment data and weaker manufacturing and ISM indicators. On a similar note, the main leveraged loan ETF (BKLN) bond prices were flat, down 0.04% over the last week and slightly better than December 2013′s end.
For the bond market’s outlook, read on to the next part of this series.
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