Search and Recovery (Third of a series)

Continuing with our special series on leveraged loan recoveries, let’s turn to one of the most pondered questions on the subject; namely, how will covenant-lite loans fare in the next downturn?

At a recent loan market conference, senior S&P analyst Ruth Yang reviewed the lite environment. She reminded attendees that most leveraged loans, including broadly syndicated, used to have maintenance covenants. But since 2006 that’s all changed:

Today the vast majority of liquid loans are cov-lite. Defaults overall have been relatively scarce during this nine-year economic recovery. Cov-lite defaults even scarcer (see Chart of the Week).

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Quote of the Week

“This [election] result means the Fed will continue to be the top choice of what moves markets.”– Andrew Brenner, head of international fixed income, National Alliance Securities.

Featuring Charts

Chart of the Week: Recovery-Lite

November 13, 2018

While data for cov-lite bankruptcies are limited, post-crisis recoveries were below pre-crisis levels.

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Chart of the Week: Tranche Dressing

November 7, 2018

Data suggests that loan recoveries are both facility and structure dependant.

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Chart of the Week: Loss and Found

October 31, 2018

Higher leverage and weaker structures for leveraged loans is expected to result in worse than historic recoveries.

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Chart of the Week: Up, Up and Away

October 23, 2018

The share of highly leveraged midcap deals sold to institutional investors is at levels well beyond those seen during the frothy 2006-07 period.

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Chart of the Week: Yield of Dreams

October 17, 2018

Debt to ebitda has risen steadily for institutional middle market term loans, but yields are up as well.

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Chart of the Week: Buyout Bites

October 11, 2018

Over the past three years, the average middle market LBO has generally remained range-bound, between $150-200 million.

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Features

Markit Recap – 11/12/2018

When market makers start sending runs based on nation states rather than sectors it may be a harbinger of fundamental change in how European credit is traded. That is precisely what we are seeing as the Brexit process descended into chaos. A number of UK cabinet members have resigned in protest at Theresa May’s draft

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Leveraged Loan Insight & Analysis – 11/12/2018

Combined AUM surpassed $750bn for U.S. CLOs and retail loan funds CLOs manage roughly half of current institutional loan outstandings with retail loan funds managing an additional 14%. Their respective shares have been steady, hovering around these levels since mid-2015 when CLOs first reached a 50% share of outstandings. Meanwhile, the pie has certainly grown

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The Pulse of Private Equity – 11/12/2018

Why the secondaries surge? Download PitchBook’s Report here. Secondaries fundraising continues apace, gathering another $26.3 billion through early Q4. That puts 2018 slightly behind last year’s record, but this year will still mark a third consecutive year with strong numbers. As a strategy, secondaries have garnered attention recently—buy-side LPs are pushing for PE exposure at the

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PDI Picks – 11/12/2018

Credit managers should embrace transparency Fund transparency should become a key part of the asset class as it continues its maturation. It’s no secret alternative assets are among the most expensive investment strategies. Of course, private credit, private equity and the like require a much more staffing-intensive effort than passive investment vehicles may need, and

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Private Debt Intelligence – 11/12/2018

Strong Private Debt Performance Pushes Dry Powder to Record Highs Distressed debt has outperformed the other private debt strategies examined over the one-year horizon to December 2017, generating returns of 11%. Direct lending, however, has been the strongest strategy over the three- and five-year horizons, generating returns of 9.6% for the three years to December

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Middle Market Deal Terms at a Glance

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State of the Capital Markets – Third Quarter 2018 Review and Fourth Quarter 2018 Outlook

October 11, 2018

Review of Current Market Conditions/ Analysis of Capital Markets Metrics/ Review of Credit Quality/ Outlook for Fourth Quarter 2018

Special Report: Spot-lite on Cov-lite

February 7, 2018

Beginning in October 2017 The Lead Left published a series of articles on covenant-lite. This report consolidates those articles.

Special Report: Private Credit vs. Public Debt

November 30, 2017

Beginning in March 2017 The Lead Left published a series of articles on private credit and public debt. This report consolidates those articles.