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Tag >> leveraged loans
Here are more encouraging signs that the economic recovery continues to gain strength.
Credit quality continues to improve and some indicators stand at two-year highs.
According to Standard & Poor's, the US speculative-grade default rate fell to 3.35 percent in mid-December, down from a peak of 11.4 percent hit in November 2009. In the US, 53 issuers defaulted through November, compared with 185 at the same time in 2009.
Private equity deal-making activity may be making a comeback, but the collateralized loan obligation market, which helped fueled the buyout boom prior to the financial crisis, remains sluggish. That suggests we won't see a new LBO boom anytime soon.
PE-sponsored companies last year accounted for 34 percent of distressed exchanges, or so-called "extend and pretend" refinancing, since the deals extend the maturities of high-yield debt that is in technical default without retiring much if any of it. Since these companies were funded mostly with leveraged loans held in CLOs, the exchanges exposed more than 500 CLOs to 96 companies that defaulted in 2009, according to a recent Moody's Investors Service report. That means the CLO market is in no condition to support a new wave of big debt-fueled deals.
An increasing number of companies are in financial distress in the UK, where the recovery is taking even longer to materialize than it is in the US. What's more, businesses don't have as many options to patch up their balance sheets as their counterparts do in the US.
More than 160,000 companies experienced significant or critical distress in the first quarter, owing 55 billion pounds to their creditors, according to a study released this week by Begbies Trayno, a restructuring specialist in the UK. This is up 14 percent from the fourth quarter of 2009.
Here's a number for you: Nearly $770 billion of leveraged loan debt is coming due over the next five years, Fitch Ratings said in a report released Monday. That represents almost 90 percent of the total amount of leveraged loan maturities through 2018.
To put that in perspective, at any point in time a majority of outstanding leveraged loans are expected to mature within seven years, and most high yield bonds are expected to mature within 10 years. So what we're looking at in Fitch's words is "an unprecedented concentration of debt maturities."
The market for collateralized loan obligations is coming back to life but still seems a long way from being able to help companies refinance loads of high-yield bonds coming to maturity in the next few years.
Citigroup is underwriting a $500 million CLO managed by WCAS Fraser Sullivan Investment Management, the first in 12 months, according to a report by Bloomberg published Tuesday.