Syndicated Scoop: Secondary Market Returns Grind Higher, Potential Cure for CLO Risk Retention, and More
This month's syndicated lending scoop includes: secondary market loan returns top 7%, a potential cure for CLO risk retention, and more.
7 October 2016
Intralinks for Financial Services—Syndicated Scoop is a newsletter providing a recap of the month’s top stories and insightful commentary related to the commercial and syndicated lending industry. Read on for a quick summary of this month’s Syndicated Scoop:
- Secondary market loan returns top 7% on the year
- Could there be a cure for CLO risk retention?
- Money pouring into property deals banks won’t touch
This Month’s Syndicated Scoop...
Secondary markets: loan returns top 7% on the year
According to the LSTA’s August Secondary Market Monthly, the S&P/LSTA Leveraged Loan Index (LLI) has returned 7.1% on the year — “the best performance we’ve seen since 2012.” Driving the market higher over the past several months has been a technical trend that has favored rising prices. New issue supply has generally been well short of demand. On the supply side, the combination of slow new issuance and rising repayment rates has actually ate away at current outstandings.
CLO risk retention cure hinges on lame duck Congress
The market is buzzing about H.R. 4166, a bill that would ease risk retention requirements on CLOs through the creation of Qualified CLOs (QCLOs). Any issuer of a QCLO would satisfy risk retention by retaining 5% of the equity, rather than 5% of the total value of the deal. As GlobalCapital reports, Meredith Coffey, EVP of research and analytics at the LSTA, said that “given the pre-election political environment, a vote during a lame duck session is the best hope the legislation has of making it through congress, though challenges remain.” LSTA is also in the process of suing the Fed and the SEC over the implementation of risk retention for CLOs.
Money is pouring into property deals banks won’t touch
Traditional bank lenders are backing away from large deals in the U.S. commercial real estate market, as regulators warn of a potential real-estate bubble. Shadow lenders (lenders that fall outside of industry oversight), such as Blackstone and Starwood Property Trust are ripe to capture the deal flow. According to Bloomberg, “private funds are seeking a record $32 billion for commercial-property debt.” These shadow lenders, which typically charge higher interest rates, can move quickly on large loans, and are able to take on more risk amid calls for caution in an area that melted down during the 2008 financial crisis.
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