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Getty Images refinancing first-lien debt held by Barings BDC

Download: LFI BDC Portfolio News 2-4-19

While the loan market has hit a plateau after rallying in the opening days of 2019, high-yield continued to pick up steam, generating a bifurcation between loans and bonds in both the primary and secondary markets. As such, issuers have flocked to the bond market—including the secured-bond market—to optimize executions as last week’s big-ticket transactions for Dun & Bradstreet and TransDigm exemplify.

Markets: As always, the BDC Reporter – and everyone else – will be keeping an eye on the markets after five weeks of rallying. We’re not yet at the December 3, 2018 level of 2,535 on the Wells Fargo Index which we set last week as a useful target, but have inched closer after the 0.9%  increase last week. That left us at 2,519 (2,496 the week before) and almost fully recovered from the December bloodbath. As we’ve discussed at greater length in the BDC Common Stocks Market Recap progress going forward is going to be harder to come by and other forms of non-investment grade debt are already leveling out. On the other hand, if January 2019 looks anything like February 2016 – the last time we had a sudden pull-back out of a seemingly clear blue sky – the price trend will remain upward with only very modest bumps along the way.  That rally lasted over a year.

M&A continues to drive activity; LBO to take out P.F. Chang’s credits held by CĪON, FSK

Arrangers continued to peel more M&A loan business off the forward calendar last week, although early 2019 successes, driven by the opening-week rally, appear to be giving way to a slightly more cautious tone. A resurgent high-yield new-issue market is benefiting as a pair of borrowers are carving out secured notes to take pressure off multibillion-dollar loan executions.

M&A drives new debt for names in several portfolios, including recently combined FS KKR Capital

The loan market remained fixated on the primary calendar as $9.4 billion of new loans, all of it M&A- and LBO-related, entered syndication last week. Following the secondary market’s early January rebound, the primary also was off to a solid start last week with a series of oversubscribed transactions, accelerated timing and the return of reverse-flex activity as some new issues started to cement pricing levels well south of the December’s rate spike.