Leveraged loan stream offers drop 201 basis points, biggest drop since March 2020

The average supply of LCD’s loan-to-name composite dipped 201 basis points in today’s reading to 94.89% of par, from 96.90 on June 9. Today’s decline is the largest week-over-week decline for the composite since the depths of the Covid – Market dislocation caused by March 19, 2020 when it fell 8.80 points during of the March 19, 2020 reading. The composite’s average supply is now at its lowest level since hitting 94.60 on the August 6, 2020 reading.

Like other risk assets, the loan market reacted negatively to last Friday’s higher-than-expected inflation and the growing prospect of a recession. The Federal Reserve announced following its meeting this week that it is raising its target rate by 75 basis points, the biggest hike since 1994, as it stresses its commitment to controlling inflation.

All 15 names in the sample were down this week by at least one point, with six loans down two or more points and two loans down more than three points. Leading this week are Zayo Group Term Loan B due March 2027, which fell to a level of 91/92 from 94.125/94.625 last week, and CenturyLink Term Loan B due March 2027, which fell more than three points from last week, to a level of 90.75/91.75.

The decline in the Flow Loans Composite Index this week outpaced that of the broader S&P/LSTA LL 100 Index, which fell 169 basis points, to an average bid of 93.48, from 95.17 June 8. The index hit an average bid of 93.36 in June. 14, down significantly from its recent high last Wednesday, but still well above the recent low of 92.70 on May 25.

By odds, here’s how the bids and reduced spreads are doing:

  • 94.86/L+439 at a four-year call for the 13 stream names rated B+ or higher by S&P; STM in this category is L+413.

Loans vs Bonds
The average supply of LCD’s high yield bonds fell 395 basis points to 85.73% of par, yielding 8.12%. The difference between the bond yield and the discounted yield on loans to maturity amounts to 205 basis points.

Numbers to date

  • June: The average stream name loan was down 29 basis points from May’s final reading of 95.18.

  • Year-to-Date: Average loan-to-name flow was down 434 bps from the final 2021 reading of 99.23.

Loan data

  • Bids increase: The average bid of the 15 stream names decreased by 201 bps, to 94.89% of par.

  • Bid/ask spreads fall: The average bid/ask spread increased by 21 bps, to 95 bps.

  • Spreads are tightening: the average spread to expiry – based on the hash levels and amortization schedules shown – has increased by 59 bps, to L+429.

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