Leveraged-Loan Market Sees Biggest Hiccup Since First Pandemic Wave

(Bloomberg) -- It sounds scary: three leveraged loan deals just got yanked in the U.S., the biggest hiccup since things went haywire early in the pandemic.

Yet it doesn’t appear to be a harbinger of major trouble and the withdrawals don’t seem to reflect broad market weakness.

Taco Bell franchise operator Luihn VantEdge Partners LLC pulled a loan sale this week. Marketing company CM Group Inc. and American Physician Partners LLC, which provides doctors to emergency rooms, did the same last week. All of them were trying, in part, to fund acquisitions.

No month has seen that many deals postponed since March 2020, when 10 transactions 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 pulled.

Other companies, meanwhile, are capitalizing on still-robust demand as the leveraged loan market continues to largely hum along even as omicron fears rocked other asset classes.

Southwestern Energy Co. saw pricing tighten on its $550 million loan, an indicator of strong investor interest. It’s also selling a junk bond to help finance its acquisition of GEP Haynesville LLC. And the S&P/LSTA Loan Price Index, which measures the performance of the U.S. leveraged loan market, rose the most since June on Tuesday.

“The loan market has been quite hot this year,” said Christian Hoffmann, portfolio manager at Thornburg Investment Management. “Broadly the new issue machine is functioning like a high-output factory pumping stuff out.”

There are signs investors are moving money out of the space, though. U.S. leveraged loan funds have seen outflows of about $93 million between Thursday and Tuesday, the first four days of the reporting week that ends Dec. 8, according to JPMorgan Chase & Co., based on Refinitiv Lipper estimates. If the outflows persist Wednesday, it will be the second straight week of fund withdrawals following a $495 million outflow the prior week, the biggest in more than a year.

Elsewhere in credit markets:

Americas

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

• U.S. high-yield bonds suffered one of their worst months since the pandemic started in November, but junk bonds have already reversed most of the rout and borrowers are taking advantage with at least five new deals announced Wednesday
• Clinical research company WCH Purchaser set pricing guidance on a a $200 million incremental loan offering that will help it repay a revolver and fund cash to its balance sheet. Yahoo and Camping World, meanwhile, each announced $300 million of add-on loans for general corporate purposes on Wednesday, another sign that the market is holding up as borrowers continue to bring deals in the remaining few days left this year to do so
• Rogers Communications is gauging investor appetite for a hybrid security, a funding strategy that blends characteristics of debt and equity and may help the company preserve its investment-grade rating after a recent spending binge
• For deal updates, click here for the New Issue Monitor
• For more, click here for the Credit Daybook Americas

EMEA

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

• Europe’s high-grade primary market remains quiet, with Wednesday seing only two deals being priced including a 1.75 billion euro covered bond for Bank of Nova Scotia
• New bond sales from the European Union may help push issuance from supranationals and agencies to a new record, according to HSBC
• The European Stability Mechanism/European Financial Stability Facility group plans to raise 27.5 billion euros in long-term funding in 2022, according to an investor newsletter published on its website.

Asia

Asian dollar bonds extended their rally Wednesday after steps by Chinese authorities to limit the fallout from property market distress relieved investors.

• Spreads on Asia high-grade dollar notes narrowed 3-4bps, according to credit traders. It would be the third straight day the spreads have tightened, and the biggest contraction since Nov. 12, a Bloomberg index shows
  • Chinese high-yield dollar bonds rose about 2 cents

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