July 11, 2024 - The second quarter was flush with primary market activity as leveraged loan volume totaled $404 billion. Institutional volume came in at a record $259 billion, or 64% of the total, which equated to a staggering 316% year-over-year increase, according to LSEG LPC. But net new deal flow was once again scarce with just 13% of second quarter institutional activity accounting for new money loans. Couple that with an average monthly repayment rate of 24% across the second quarter, according to the Morningstar|LSTA Leveraged Loan Index (LLI), it is to no surprise that the LLI’s rolling 12-month growth rate remained negative for the 15th consecutive month in June, at -0.7%. Despite the lack of new supply though, visible demand levels remained robust across the quarter; with CLO and Loan Mutual Fund AUM growing by roughly $17 billion and $10 billion, respectively. When comparing those figures to the paltry $4.5 billion rise in LLI outstandings over the same period, it is no wonder that borrowers were able to take advantage of the ongoing mismatch between supply and demand. To wit, the average new issue yield level compressed by almost 30 basis points – to a multi-year low of 8.8% during the second quarter.
In taking a deeper dive into primary market activity, we turn to Pitchbook| LCD who also spoke to the fact that repricings and refinancings made the second quarter the busiest ever in the institutional loan market. Here too, we see the lack of new money loans – $51.4 billion of non-refinancing activity (or 13% of total activity). LCD though, goes on to break down the numbers even further with straight-up refinancing volume totaling $94.3B (23%), which is then coupled with repricing and extension volumes (done via amendments) that totaled $223.4 billion (55%) and $35.9. billion (9%), respectively.
That all said, secondary bids softened in June, which resulted in an 18-basis point increase in new-issue yields over May’s multi-year low. At the same time, the secondary market became a bit less frothy by quarter’s end with the percentage of loans trading above par falling to a three-month low of 37% in June – after reaching 52% the month prior. To put that figure in better context, par-plus market share stood at just 11% just six months ago.
