Tuesday, February 9, 2010

Bullock, Sakoui: Leveraged loan market revives

"..."The loan market is going to be a central theme of 2010 because it was still largely shut in 2009," says Tim Donahue, head of leveraged capital markets at JPMorgan. "People are starting to look at it again as a source of financing for a variety of things."

Leveraged loans played a role in the run-up to the financial crisis, topping $500bn during the leveraged buy-out (LBO) peak in 2007. As sponsors needed financing, the growth in popularity of structured products buying loans, called collateralised loan obligations (CLOs), provided the demand. However, when the credit markets seized up, the creation of CLOs stopped and average trading prices on loans dropped to a low of 64 cents on the dollar in December 2008.

Prices have since re-bounded to 93 cents

as lower-than-expected defaults and a flood of cash to CLOs and other investors from refinancing prompted buyers. Investors also have been directing cash to mutual funds that buy loans, according to Lipper FMI Americas. Bank loan funds have seen nine consecutive weeks of inflows for a total of more than $1.3bn for the period..."

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