Why the leveraged loan issuance declined, but not the demand
The leveraged loan market
The leveraged loan market (BKLN) was no exception to being affected by the decline in the U.S. Treasury rates (TLT). As interest rates across the mid-term and long-end Treasury curve declined, the market offered a lower rate of return on the new issuance. The leveraged loans (SNLN) normally pay a floating interest rate above LIBOR1+125 basis points or 150 basis points, which moves in tandem to the market’s interest rate.
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Average new-issue yield for BB rated loans was little changed last week, at 3.51%, versus 3.53% previous week, while yield for single-B rated loans edged up to 4.93%, from 4.90% in the previous week.
The total issuance declined to $15.0 billion—$11.1 billion or 43% lower from the previous week’s $26.1 billion issuance. The year-to-date issuance was $1.7 trillion— $214 million lower than $1.9 trillion over the same period in 2013.
Leveraged loan issuers took advantage of lower Treasury rates
A total of 20 issuers accessed the leveraged loan market with an average ticket size of $750 million—lower than the average ticket size of $1.37 billion in the previous week. In the previous week, the number of deals was 19. Deals with reasonable pricing received a good reception in the leveraged loan primary market.
Some of the major issuers that tapped the leveraged loan market include Lands End, Inc. (LE), Interline Brands, Inc. (IBI) and Shake and Streaks. Shake and Streaks is a subsidiary of Biglari Holdings Inc. (BHI).
Leveraged loan index and ETF Price
The S&P/LSTA U.S. Leveraged Loan 100 Index, which tracks loans in the B to BB rated category, increased slightly, while the prices for the main leveraged loan ETFs including PowerShares Exchange-Traded Fund Trust ETF (BKLN) and Highland/iBoxx Senior Loan ETF (SNLN) were down from the previous week.
- LIBOR stands for London Interbank Overnight Rate and is the benchmark interest rate for many adjustable rate mortgages, business loans, and financial instruments traded on global financial markets. Currently, the 3-month LIBOR rate is 0.23%. ↩