December 6, 2018 / 8:34 PM / 11 days ago

US loan prices fall amid equity market selloff

NEW YORK, Dec 6 (LPC) - The US leveraged loan market remained pressured Thursday amid a selloff in equity markets.

Loans early Thursday were down between 50bp to 200bp with some of the bigger deals that had already been challenged in the market feeling the weight of the volatility.

The term loan for Refinitiv – Blackstone Group bought a 55% stake in Thomson Reuters’ Financial & Risk business earlier this year – was quoted as low as 96-97 Thursday, down about a point from Tuesday.

“Early in the morning there was definitely a panic feel,” said a trader. “But some guys are now stepping in, even as the Dow is still down.”

At least one firm sought to take advantage of the volatility, releasing a US$335m OWIC seeking US$5m slices of a number of loans including Acadia Healthcare’s tranche B3 term loan and HCA’s tranche B-10 term loan, according to a portfolio manager.

The SMi100, which tracks the 100 most widely held loans, has fallen 173bp since October 1 to 97.14 on December 4.

Loan funds saw their third straight week of outflows, with investors pulling US$1bn from the funds in the week ending December 5, according to Lipper.

The Dow Jones Industrial Average was down more than 1.3% on Thursday at around 3:15 p.m. and has fallen more than 6% since the start of October to Tuesday.

The primary loan market has not been immune to the volatility, with upward price revisions in November, including on spread and original issue discount (OID), soaring to their highest levels since June, according to LPC data. There were 17 upward price flexes last month, up from seven in October. In contrast, price cuts fell from 23 in October to nine in November, the lowest monthly level in two years.

At least five loan transactions were pulled from the market in November including Perimeter Solutions and Jason Inc, according to LPC data, and a number of deals have had to significantly increase the discount they were sold at in order to clear the market.

“I have seen a number of cases where banks have applied aggressive discounts through their fees because they want to get the paper off their books,” said a second portfolio manager. “It is a little unusual... normally banks would sit on loans in a market like this and anticipate a better day.”

Digital interaction specialist ELO Touch Solutions on Thursday revised terms on a US$360m covenant-lite term loan it is seeking to back its buyout by Crestview Partners, lowering the OID to 95 from a prior range of 97-98, according to a second source. It was already offering to pay 650bp over Libor, but also revised amortization to 5% per year from 1%, added the source.

“As far as loans go, the correction is pretty serious,” a senior banker said. (Reporting by Kristen Haunss and Aaron Weinman. Editing by Michelle Sierra and Jon Methven)

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