That’s the finding of S&P Leveraged Data & Commentary, which reports that secondary trade values of leveraged loans have risen to a 39-month high of 98.03% of original cost. This is based on a 15-issuer composite, which includes such recent gainers as First Data and TXU.
Why the increase? S&P LDC gives most of the credit to “lopsided technicals,” in which loan repayments have far outpaced new issues ($19 billion vs. $4.5 billion in the past month) — meaning that secondary market competition has intensified due to an influx of investors who want to put money to work.
S&P LDC also says that record inflows to bank loan mutual funds also have played a part, and will continue as firms like Apollo, PIMCO and Prudential prep new funds to meet the demand of rate-hedging investors.
And then a warning: “For regular-way transactions, the technical imbalance has put issuers in the driver’s seat and has eroded investor pricing power. This also opens the door for more covenant-lite structures.”
It’s hard to say that pricing at par is reflective of a bubble, but a return of cov-light structures would be…