Coronavirus in the Credit Market | The Corona Correction | Refinitiv

TL;DR

The leveraged loan market is experiencing a decline in new deals and reduced demand due to the ongoing Coronavirus pandemic.

Transcript

Welcome to the Corona Correction Series in association with Refinitiv. I'm your host, Roger Hirst. Dave Puchowski has been analyzing credit markets with Refinitiv for over 15 years, covering a broad range of loan types, including leveraged loans. Now, before the Coronavirus scare had taken hold, there were hints from the leveraged loan market of st... Read More

Key Insights

• 🤝 The leveraged loan market is experiencing a decline in new deals and institutional loan buying, indicating potential stress and reduced demand.
• 😎 Spreads in the market have widened during negotiations, suggesting increased risks and a cooling trend.
• ❓ The ongoing Coronavirus pandemic has further exacerbated the challenges in the leveraged loan market.
• 😘 The oil price shock poses a significant threat to the lower end of investment grade and the high-yield sector within the leveraged loan market.
• ☠️ Policy makers and banks have taken measures to support the market, but the decrease in demand may make it difficult for lower-rated issuers to secure financing.
• 🉐 Investors in the leveraged loan market currently have an advantage, with borrowers being impacted by reduced demand and widening spreads.
• 🛀 U.S. regulators have shown willingness to provide flexibility to borrowers during these troubled times.

Questions & Answers

Q: How is the leveraged loan market affected by the Coronavirus crisis?

The leveraged loan market has experienced a decline in new deals and institutional loan buying, indicating potential stress in the market. The outbreak has worsened the already cooling trend in this market.

Q: What are the implications for investors in the leveraged loan market?

Investors in the leveraged loan market are currently in a better position, as borrowers are facing the impact of reduced demand and widening spreads. However, there is still a risk for lower-rated issuers to secure the finances they need.

Q: How has the oil price shock affected the leveraged loan market?

The oil price shock poses a significant threat, especially for the lower end of investment grade and the high-yield sector within the leveraged loan market. A persistently lower oil price puts these sectors at greater risk.

Q: How have policymakers and banks responded to the challenges in the leveraged loan market?

Policymakers and banks have taken steps to support the leveraged loan market by providing flexibility to borrowers during these troubled times. However, the demand for loans has decreased, making it more challenging for lower-rated issuers to obtain financing.

Summary & Key Takeaways

• The leveraged loan market, catering to highly indebted companies, has seen a significant decline in new deals and institutional loan buying.

• The Coronavirus outbreak has further exacerbated the cooling trend in the leveraged loan market, impacting even event-driven financings.

• Spreads in the market have widened during negotiations, hinting at potential stress and increased risks for the lower-rated tranches.