Credit & Loan Correction | The Corona Correction | Refinitiv

TL;DR

The high-grade bank loan market has become less strained, with borrowers turning to the bond market for liquidity. Loan lenders are now focusing on loan amendments and adding lender protections. Refinancing in the investment grade space is limited to short-term options, and the leveraged loan market has seen a significant decrease in volumes.

Transcript

Welcome to the Corona Correction series in association with Refinitiv, I'm your host, Roger Hirst. In early March, Dave Puchowski, Refinitiv Director of Market Analysis in the loans and credit space, outlined a market in which volumes had dried up, and terms of transaction was shifting towards lenders. But he also indicated that regulators and lend... Read More

Key Insights

• ✋ Borrowers in the high-grade bank loan market are shifting towards the bond market for debt issuance.
• 🪜 Loan lenders are focused on loan amendments and adding lender protections during the crisis.
• 👾 Refinancings in the investment grade space are limited to short-term options and have become more expensive.
• 🙈 The leveraged loan market has seen a significant decrease in volumes.
• ✋ The high-yield bond market has become more attractive for issuers, with retail investors showing increased interest.
• 🎚️ Uncertainty remains in pricing and levels of government support.
• 🔊 M&A activity remains subdued, impacting loan volumes in both high-grade and leverage spaces.

Questions & Answers

Q: How has the high-grade bank loan market changed in recent weeks?

The market has become less strained, with borrowers turning to the bond market for debt issuance instead of drawing down on loans. Loan lenders are now focusing on loan amendments and adding lender protections.

Q: Why are refinancings in the investment grade space limited to short-term options?

Issuers can only do short-term refinancing due to the crisis. Longer-term tranches have become more expensive, with higher fees for undrawn facilities. This is the highest since 2011.

Q: How has the leveraged loan market been affected by the crisis?

Loan volumes in the leveraged loan market have plummeted, with only $12 billion of completed volume in the second quarter. This is 77% lower year over year.

Q: How does the high-yield bond market compare to loan funds?

The high-yield bond market has been more attractive, with issuers locking in longer term debt. Retail fund flows reflect this, with more investment in high-yield bond funds, while loan funds continue to see outflows.

Summary & Key Takeaways

• In the high-grade bank loan market, there has been a slowdown in borrowers drawing down on revolving credits or issuing incremental loans. Issuers have been able to go to the bond market instead to issue debt.

• Bank loan lenders are now focused on loan amendments, loosening financial covenants and adding lender protections. Refinancing in the investment grade space is limited to short-term options.

• Loan volumes in the leveraged loan market have plummeted, with the high-yield bond market becoming more attractive. Retail fund flows reflect this, with more investment in high yield bond funds.