Why was the supply relatively low for leveraged loans last week?
The U.S. leveraged loan market saw $16.4 billion of new issuance last week, following $17.5 billion of issuance in the previous week. The recent issuance brings the year-to-date leveraged loan issuance to $217 billion, down from the $258 billion recorded during the same period a year ago.
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Unlike the high yield bond (JNK) and Treasury bond (TLT) markets, which remained volatile on the backdrop of fluctuations in the market interest rates, the leveraged loan market has been maintaining long steady flows of cash (read Part 6 of this series for details). Because of such high streaks of inflow, indicating a solid demand for the floating rate loans, issuers are rolling out more aggressive prices and deal structures. This has been the trend in the leveraged loan market for the past couple of weeks now.
In fact, a number of deals continued to win tight pricing from investors last week including the Caesars Growth Properties Holdings deals, a part of Caesars Acquisition Company (CACQ) (discussed in detail in Part 5 of this series). Tight pricing essentially means higher investor demand for loans and contraction in credit spreads, as investors perceive less risk for holding loans; while the widening of prices means that investors are showing reluctance in accepting the deal terms, which essentially forces issuers to expand the offering terms to entice the demand.
Read the next part of the series to know about the deal structure of leveraged loans and the performance of the major leveraged loan ETFs, including the PowerShares Exchange-Traded Fund Trust II (BKLN) and Pyxis/iBoxx Senior Loan (SNLN).