The Corporate Loan Market in a Global Context

Transcription

1 The Corporate Loan Market in a Global Context Moderator: Panelists: Bram Smith, LSTA Fred Haddad GoldenTree Paul Hatfield, Alcentra David Lerner, Shenkman Dan McMullen, GSO Hong Kong June 8, 2017

2 Agenda 1. Factors Impacting Global and US Credit Markets 2. US and European Primary Markets 3. Closing Thoughts 2

3 Factors Impacting the Global and US Credit Markets 3

4 The World We Live In Emerging Markets Inflation Global GDP Growth Negative Interest Rates Regulatory Environment Geopolitical Risks Market Volatility Uncertainty Strong $? Energy/Commodity Prices Rising Rates in US Impact of Brexit US Tax Reform Trump Administration 4

5 US & European Primary Markets Supply & Demand Repricings Investor Base Market Convergence Credit Quality Forward Calendar 5

6 Billions Par Amount Outstanding: US and Europe $1,200 $1,000 $800 $600 $400 $200 $ US Europe ME March 2017 Source: S&P Capital IQ 6

7 Total Annual Returns for US and Europe Loans 12.00% 10.00% 8.00% 6.00% 4.00% 2.00% 0.00% -2.00% Months 1Q17 US Europe Source: S&P Capital IQ 7

8 Billions Global New Loan Issuance $900 US Loan Issuance (Leveraged Institutional) European Loan Issuance (Leveraged) $800 $700 $600 $500 $400 $300 $200 $100 $ Q16 1Q17 Source: Thomson Reuters LPC 8

9 1Q13 1Q14 1Q15 1Q16 1Q17 1Q13 1Q14 1Q15 1Q16 1Q17 Billions Billions US and European New Issue: Refinancing vs. New Money $300 US Refinancing US New Money Euro. Refinancing $100 Euro. New Money $250 $75 $200 $150 $50 $100 $25 $50 $- $- Source: Thomson Reuters LPC 9

10 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 Billions US Refinancing Volume and Percent of Loans Trading at Par/Par + $250 US Refinancing Volume ($ billions) [LHS] US Share of Secondary Market Priced at Par & Above (%) [RHS] 100% $200 80% $150 60% $100 40% $50 20% $- 0% Source: Thomson Reuters LPC 10

11 Visible Inflows/Outflows into US Loan Market $20B $15B $10B $5B $0B -$5B -$10B CLO Issuance Prime Fund Flows Source: S&P Capital IQ 11

12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 Billions European Refinancing Volume and Percentage of Loans Trading at Par/Par + $50 Euro. Refinancing Volume ($ billions) [LHS] Euro. Share of Secondary Market Priced at Par & Above (%) [RHS] 100% $40 80% $30 60% $20 40% $10 20% $- 0% Source: Thomson Reuters LPC 12

13 Primary Allocations for Institutional Loans (Excluding Banks) in US and Europe 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% US Ins & Fin Cos, Hedge, HY & Distressed Funds Loan Mutual Funds CLO 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% NA EURO C r e d i t F u n d s / O t h e r F i n. & I n s u r. C o. C L O M a n a g e r s Q17 Source: S&P Capital IQ 13

14 Yield to Maturity at Issue for Institutional Loans Rated B in the US and Europe (rolling 3-Months) 7.0% 6.5% 6.0% 5.5% U.S. 5.0% 4.5% Europe 4.0% 3.5% 3.0% Nov Jan Mar May Jul Sep Nov Jan Mar Source: LCD, an offering of S&P Global Market Intelligence 14

15 US vs. European 3 Month LIBOR Since % 1.1% 0.9% 0.7% USD EUR base rate differential 3mth EURIBOR 3mth USD LIBOR 0.5% 0.3% 0.1% -0.1% -0.3% -0.5% 15

16 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Number of Flexes Downward Flex Continues to Dominate Monthly Institutional Loan Flex Activity # of flexes up # of flexes down 16

17 Mar-07 Jan-08 Nov-08 Sep-09 Jul-10 May-11 Mar-12 Jan-13 Nov-13 Sep-14 Jul-15 May-16 Mar-17 Jan-13 Jun-13 Nov-13 Apr-14 Sep-14 Feb-15 Jul-15 Dec-15 May-16 Oct-16 Mar-17 Percentage of Global Loan Indices with Cov- Lite [LHS] or Floors [RHS] for US &Europe S&P/LSTA Leveraged Loan Index S&P European Leveraged Loan Index 80% 70% 60% 50% 40% 30% 20% 10% 0% US Europe 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 17

18 Q17 Share of LBOs (%) Leverage: More US Deals With Leverage >= 6x But Movement Away from >= 7x Fewer LBOs Have High Leverage 70% 60% 50% 40% 30% 20% 10% 0% LBOs with Lev >=7x LBOs with Lev >=6x LBOs are the most leveraged loans in the market, so serve as a proxy for leverage caps Since the crisis, share of more highly leveraged loans has increased, peaking in 2015 Since 2015, share of loans with leverage >= 7x has fallen and flattened Banks continue originating loans to US companies with leverage 6-7x, provided they comply with Leverage Lending Guidance s ability to repay criteria Source: S&P / LCD 18

19 Credit Quality of New Issue Average Pro Forma Credit Statistics: EBITDA/Cash Interest Average Pro Forma Credit Statistics: Total Debt/EBITDA 5.0x 5.1x 4.5x 5.0x 4.0x 4.9x 3.5x 4.8x 3.0x 4.7x 2.5x 4.6x 2.0x 4.5x 1.5x 4.4x 1.0x 4.3x 0.5x 4.2x 0.0x Q17 4.1x Q17 US Europe US Europe 19

20 Equity as a Percent of Total Sources Average Contributed Equity in New Issue 60% 50% 40% 30% 20% 10% 0% Q17 US Euro 20

21 Lagging 12-Month Default Rate, Based on Principal Amount 7% 6% 5% 4% Europe 3% 2% U.S. 1% 0% Mar 2012 Aug 2012 Jan 2013 Jun 2013 Nov 2013 Apr 2014 Sep 2014 Feb 2015 Jul 2015 Dec 2015 May 2016 Oct 2016 Mar 2017 Source: S&P/LSTA Leveraged Loan Index and S&P European Leveraged Loan Index 21

22 Billions New Issue Forward Calendar $600 $500 $400 $300 $200 $100 $ ME April 16 U.S. Europe ME Apr 17 Source: S&P Capital IQ 22

23 Closing Thoughts 23

24 A Look Back and Forward YTD April 16 YTD April 2017 Full 2017 Institutional New Issue US Euro $257B $45B $336B $17B $58.03 $16.87 $169B $39B Returns US -0.7% 10.16% 9.72% 8.06% Euro 4.4% 3.8% 5.44% 4.5% Defaults (by Amount) US Euro 1.50% 2.12% 1.58% 2.40% 1.69% 1.74% 1.43% 1.70% Source: S&P Capital IQ 24