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3/11/2019

Weekly Leveraged Loan Market Update

Real Estate

Secure Foundation or False Dawn?

  • The primary loan market is off to a fast start this month, with nine new deals launching last week for total volume of ~$11.8 billion (compared to the year-to-date average weekly volume of $9.8 billion)
    • The average bid of the LCD Flow Name Index is 98.80, the second highest reading since November, despite the broader equity sell-off last week
      •  The forward calendar currently sits at $37.0 billion with 37 deals in the pipeline
        • Highest volume reading since the first week of February and the highest deal count since the third week of January


        CIT Bottom Line
        The loan market is exhibiting stability despite persistent retail cash outflows and a minor equity downdraft. The market is being girded by low default rates and continuing CLO issuance. But as December’s volatility demonstrated, the loan market’s stability can be… fragile. The prevailing bullish tone is something we can merely observe in the moment, not project into the future.


        CIT Weekly LoanDex®: A Middle Market Health Gauge

        Weekly LoanDex


        YTD LoanDex® Tracker

        Weekly LoanDex Tracker

        LoanDex® Model Drivers

        Broader Market Sentiment
        Broader market sentiment links the volatility of macroeconomic indicators, monetary and fiscal policy, and political events to the leveraged loan market. Macroeconomic momentum, in the context of prevailing business cycles, is a key indicator for investor confidence and required security yields. Quantifying systematic risk, especially tail-end risk, is the first step to forecast leverage loan yields and volume trends.

        Loan Market Technicals
        Loan market technicals are a snapshot of liquidity based on the current and trailing supply/demand dynamics.  CIT's model factors net loan flows, adjusted new-money volume and other independent variables to quantify surplus / deficit liquidity. Periods of excess liquidity are frequently characterized by eroding credit discipline and tightening clearing yields as investors compete for scarce assets, whereas lenders exercise more influence during periods reflective of constrained market demand. In addition to the current technical equation, CIT monitors the trailing supply/demand relationship to quantify sideline liquidity

        Loan Market Secondary Support
        Secondary market volatility influences investor confidence and relative value in the primary market. CIT's model quantifies the secondary market support by tracking secondary loan price movement with an emphasis on normalized deviation metrics. 

         

        Disclaimer: The information contained herein has been compiled from a variety of sources believed to be reliable.  We do not guarantee such information or make any representation as to its accuracy.  This publication is intended to provide general information regarding capital markets and financing matters and is not intended nor should it be construed, to provide legal, accounting or financial advice.

        Source: S&P's Leveraged Commentary & Data, Thomson Reuters LPC, Bloomberg, Capital IQ, Moody's, S&P Credit Portal

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