Leveraged loan market sees biggest hiccup since first pandemic wave


(Bloomberg) — It sounds scary: Three leveraged loan deals have just been canceled in the United States, the biggest setback since things went haywire at the start of the pandemic.

Still, this doesn’t seem like a harbinger of major trouble, and the pullbacks don’t seem to reflect general market weakness.

Taco Bell franchise operator Luihn VantEdge Partners LLC completed a loan sale this week. Marketing firm CM Group Inc. and American Physician Partners LLC, which supplies emergency room doctors, did the same last week. All were trying, in part, to finance acquisitions.

No month has seen so many deals postponed since March 2020, when 10 deals valued at $14.3 billion were canceled, according to data compiled by Bloomberg. But December 2021 pales in comparison so far, with just $1.46 billion drawn.

Other companies, meanwhile, are capitalizing on still-robust demand as the leveraged loan market continues to buzz broadly even as omicron fears have rattled other asset classes.

Southwestern Energy Co. saw prices tighten on its $550 million loan, an indicator of strong investor interest. He also sells a junk bond to help fund his acquisition of GEP Haynesville LLC. And the S&P/LSTA Loan Price Index, which measures the performance of the US leveraged loan market, rose the most since June on Tuesday.

“The loan market has been pretty hot this year,” said Christian Hoffmann, portfolio manager at Thornburg Investment Management. “Overall, the new emitting machine works like a high-yield factory pumping out stuff.”

There are, however, signs that investors are taking money out of the space. U.S. leveraged loan funds saw outflows of about $93 million between Thursday and Tuesday, the first four days of the reporting week ending Dec. 8, according to JPMorgan Chase & Co., on the based on Refinitiv Lipper estimates. If the outflows persist on Wednesday, it will be the second straight week of fund outflows after an outflow of $495 million the previous week, the largest in more than a year.

Elsewhere in the credit markets:

Americas

Billionaire fund manager Jeffrey Gundlach sees “rough waters” for financial markets and advises keeping an eye on the high-yield bond market, a potential “canary in the coal mine” for risky assets.

  • US high yield bonds suffered one of their worst months since the pandemic began in November, but junk bonds have already reversed most of the rout and borrowers are benefiting with at least five new deals announced Wednesday
  • Clinical research company WCH Buyer has set pricing guidelines on an additional $200 million loan offering that will help it pay off a revolver and fund cash on its balance sheet. Yahoo and Camping World, meanwhile, each announced an additional $300 million in general business loans on Wednesday, another sign that the market is holding up as borrowers continue to strike deals in the few days remaining. this year to do so.
  • Rogers Communications gauges investor appetite for a hybrid stock, a financing strategy that combines the characteristics of debt and equity and could help the company retain its investment grade rating after a recent spending spree
  • For deals updates, click here for the New Issue Monitor
  • To learn more, click here for Credit Daybook Americas

EMEA

Denmark, France and the European Stability Mechanism/European Financial Stability Facility have plans for next year to increase debt.

  • Europe’s high-quality primary market remains quiet on Wednesday as only two deals were rated, including a €1.75 billion covered bond for the Bank of Nova Scotia
  • New European Union bond sales could help push supranational and agency issuance to new record, says HSBC
  • The European Stability Mechanism/European Financial Stability Facility group plans to raise €27.5 billion in long-term funding in 2022, according to an investor newsletter published on its website.

Asia

Asian dollar bonds extended their rally on Wednesday after measures taken by Chinese authorities to limit the fallout from the housing market distress provided relief to investors.

  • Spreads on high-quality Asian dollar notes narrowed by 3 to 4 basis points, according to credit traders. It would be the third day in a row that spreads have tightened, and the biggest contraction since Nov. 12, according to a Bloomberg index.
    • Chinese high-yield dollar bonds rose about 2 cents

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