Voya Perspectives Series | Talking Points | September 11, 2014
Voya Senior Loan Group
Average Bid
S&P/LSTA Leveraged Loan Index
Bids Soften As The Fall Calendar Unfolds
January 1, 2010 to September 11, 2014
■ The new issue pipeline unfolded more fully this past week,
putting pressure on many secondary prices within the
S&P/LSTA Leveraged Loan Index (the “Index”). The result,
not surprisingly, was a 30 bps dip in the average Index bid
(to 98.12), driving an overall return of -0.22% for the week.
99
■ In general, loan managers took a step back from
secondary market activity, waiting to see how terms shake
out for deals that have launched over the past two weeks.
Several of the larger transactions face commitment
deadlines next week. For those deals, direction will come
clear only at or near the time the books are closed.
91
■ The forward calendar of institutional deals closed the week
at $59.6, up from last week’s $53.2 billion. On top of this,
eight BWICs (Bids Wanted In Competition, i.e., a portfolio
sale) were brought to market, totaling $1.2 billion. (Much of
this was related to the natural unwinding of legacy CLOs
and not what would be considered fire-selling.) As we saw
in July and the beginning of August, confronted with this
stock of supply, the average secondary market bid for
many issues couldn’t hold ground as managers sold to
make space for upcoming new issue. No different than any
other lively and actively managed investment market.
■ On the other side of the technical coin, demand was
effectively flat. Retail loan fund outflows totaled $577
million for the five business days ended Sept 10, in line
with last week’s $537 million (per Lipper FMI). CLO
issuance moderated a bit, coming in at $461 million,
bringing the YTD total to just under $86 billion. Full year
targets from some sell-side institutions top $110 billion.
97
98.12
95
93
89
87
Average Three Year Call Secondary Spreads
S&P/LSTA Leveraged Loan Index 1,2
January 1, 2010 to September 5, 2014
L+900
L+800
L+700
L+600
L+468
L+500
L+400
Lagging 12 Month Default Rate3
S&P/LSTA Leveraged Loan Index
December 31, 1998 to September 11, 2014
12%
10%
■ Weekly returns were in the red across all cohorts, with
CCCs leading the way to the downside at -0.49%, after
topping the ranks last week. Single Bs came in at -0.18%
and BBs at -0.23%.
8%
■ Average new-issue clearing yields were mixed; 4.09% for
BBs (vs. 4.14% a week ago) and 5.60% for Bs (5.59%).
2%
6%
3.34%
0.64%
4%
0%
Defaults By Issuer Number
Portfolio Managers
Defaults By Principal Amount
Voya Senior Loan Strategy
The Voya Senior Loan Group is a part of Voya Investment Management. The team is
comprised of 27 investment professionals and 25 dedicated support staff. There are
five portfolio management teams in Scottsdale, each of which is responsible for
particular industries, and a team located in London that is responsible for sourcing
overseas loans.
Dan Norman
Group Head
Jeff Bakalar
Group Head
The Voya Senior Loan Strategy is an actively managed, ultra-short duration floating
rate income strategy that invests primarily in privately syndicated, below investment
grade senior secured corporate loans. Senior loans are floating rate instruments that
can provide a natural hedge against rising interest rates. They are typically secured
by a first priority lien on a borrower’s assets, resulting in historically higher recoveries
than unsecured corporate bonds.
Voya Investment Management was formerly ING U.S. Investment Management
Voya Investment Management Talking Points | September 11, 2014
August in Review
Fundamental credit readings remained positive for the month,
with no defaults for the Index. As a result, the trailing default
rate by principal amount for the Index dropped to 3.61% from
July’s 3.89%. Excluding EFH, the default rate would have
ended August at 0.44%.
Coming off the challenging market technicals that beset most
of July, the loan market rallied in late August to provide an
Index return of 0.15% for the month. The average bid stood at
98.44 on August 31, down from 98.63 at the end of July, but
up from a mid-month low of 98.17. The year-to-date return at
the end of August was 2.73%.
The big contributor to July’s negative return, withdrawals from
retail high-yield funds, played a much lesser role in August’s
number. Retail investors withdrew $12.6 billion from high-yield
bond funds and ETFs during the four week period ending
August 6, which prompted bond managers to liquidate their
large, liquid loan positions in order to meet those
redemptions. This pressure later eased, as high-yield flows
turned positive during the last part of August. Retail loan flows
remained negative at $3 billion for the month (per Lipper FMI),
but the pace continued to be consistent and - importantly reasonably predictable.
Additionally, conditions in the loan market during the latter
part of the month benefited from a slowing supply pipeline
heading into the U.S. Labor Day holiday and continued strong
demand from new CLOs ($10.3 billion in fresh deals priced
during August). In fact, as of August 31, CLO volume for the
year of $84.1 billion already tops the full year figure of 2013
($82.6 billion).
Returns were positive across ratings cohorts but led by the
CCC part of the market, as risk taking rebounded late in the
month. CCCs returned 0.26%, while B and BB loans followed
with 0.18% and 0.08%, respectively.
Unless otherwise noted, the source for all data in this report is Standard & Poor’s/LCD. S&P/LCD
does not make any representations or warranties as to the completeness, accuracy or sufficiency
of the data in this report.
1 – Assumes 3 Year Maturity. Three year maturity assumption: (i) all loans pay off at par in 3 years,
(ii) discount from par is amortized evenly over the 3 years as additional spread, and (iii) no other
principal payments during the 3 years. Discounted spread is calculated based upon the current bid
price, not on par. [Please note that Index yield data is only available on a lagging basis, thus the
data demonstrated is as of September 5, 2014.]
2 – Excludes facilities that are currently in default.
3 – Comprises all loans, including those not tracked in the LSTA/LPC mark-to-market service. Vast
majority are institutional tranches. Issuer default rate is calculated as the number of defaults over
the last twelve months divided by the number of issuers in the Index at the beginning of the twelvemonth period. Principal default rate is calculated as the amount defaulted over the last twelve
months divided by the amount outstanding at the beginning of the twelve-month period.
General Risks for Floating Rate Senior Bank Loans: Floating rate senior bank
loans involve certain risks. Below investment grade assets carry a higher than
normal risk that borrowers may default in the timely payment of principal and
interest on their loans, which would likely cause the value of the investment to
decrease. Changes in short-term market interest rates will directly affect the yield
on investments in floating rate senior bank loans. If such rates fall, the
investment’s yield will also fall. If interest rate spreads on loans decline in general,
the yield on such loans will fall and the value of such loans may decrease. When
short-term market interest rates rise, because of the lag between changes in such
short term rates and the resetting of the floating rates on senior loans, the impact
of rising rates will be delayed to the extent of such lag. Because of the limited
secondary market for floating rate senior bank loans, the ability to sell these loans
in a timely fashion and/or at a favorable price may be limited. An increase or
decrease in the demand for loans may adversely affect the loans.
Group Heads
Dan Norman
Telephone - 480-477-2112
dan.norman@voya.com
Jeff Bakalar
Telephone - 480-477-2210
jeff.bakalar@voya.com
This commentary has been prepared by Voya Investment Management for informational purposes. Nothing contained herein should be construed
as (i) an offer to sell or solicitation of an offer to buy any security or (ii) a recommendation as to the advisability of investing in, purchasing or selling
any security. Any opinions expressed herein reflect our judgment and are subject to change. Certain of the statements contained herein are
statements of future expectations and other forward-looking statements that are based on management’s current views and assumptions and
involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed
or implied in such statements. Actual results, performance or events may differ materially from those in such statements due to, without limitation,
(1) general economic conditions, (2) performance of financial markets, (3) changes in laws and regulations and (4) changes in the policies of
governments and/or regulatory authorities. The opinions, views and information expressed in this commentary regarding holdings are subject to
change without notice. The information provided regarding holdings is not a recommendation to buy or sell any security. Fund holdings are fluid
and are subject to daily change based on market conditions and other factors. Voya Compliance Approval ID #10482
Past performance is no guarantee of future results.
Approved for client/investor use.
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