The New Price is Right

Amid all the wondrous frolicking enjoyed by many this past holiday weekend, we were reminded again of one corollary to good parenting: Otherwise well-mannered children get into trouble when not occupied with constructive activities.

That observation came to mind on reading an interesting note yesterday from content partners S&P Capital IQ. They report that May showed the highest level of leveraged loan re-pricings since early 2014. Apparently the dearth of buyouts and acquisitions has compelled idle loan arrangers to squeeze lenders for a few more basis points.

This outcome should have been expected. The supply/demand imbalance continues in the market with too much cash chasing too few deals. New money deal flow has been slow to pick up this year for a variety of factors, and lenders are approaching the mid-point of the year with plenty of capital to put to work. In those circumstances, cash often gets put to work in less-productive (relative to buyouts and acquisitions) ways.

Adding fuel to the fire, large cap spreads, after having risen through the second half of 2014, have been contracting since February. As one data point, S&P shows single-B all-in-yields slipping from 5.2% in March to 4.8% at last week’s measurement.