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12/3/2018

Weekly Leveraged Loan Market Update

Real Estate
Insights

Surrender to the Flow

  • Loan market retreats in response to a $3 billion net outflow over the past two weeks
    • Broad secondary market sell off continues – average LCD Flow Name Index bid declined 55 bps last week to 98.24, down a total of 124 bps from October
    • Deals in market received some investor pushback – November saw investor-friendly flex activity out number issuer-friendly changes
    • As a result, the primary market has slowed down, with minimal opportunistic deal flow – LBO and M&A activity accounts for 87% of the $29.6 billion forward calendar


    CIT Bottom Line
    Holiday-shortened December should be a relatively light month of new issuance for the loan market, which will be more thoroughly tested in early 2019.


    CIT Weekly LoanDex®: A Middle Market Health Gauge

    Weekly LoanDex 11.5

    YTD LoanDex® Tracker

    Weekly LoanDex Tracker 11.5

    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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