100 Days, 100 Nights to Know a Market’s Heart

I know, you’ve been bombarded with analysis of “the first 100 days,” and by now you've heard it, like, 100 times already. But I'll bet you $100 none of this analysis mentioned the high yield loan and bond markets.

And since this arguably meaningless (though nice and round) number of days has become a device for measuring presidential performance, I thought, why not check in and see what’s been accomplished in our markets since Jan. 20? I mean, if it’s good enough for the president and all that.

(Not that I’m crediting Mr. Obama for anything that might be construed as improvement, though if you read this blog regularly you know I’m a fan.)

On the junk bond side, the last 100 days have seen a decent number of deals on the primary, 37 in all, according to KDP Investment Advisors, and there's a nice queue of companies lining up with issues of mostly $500 million or more. That’s compared with 25 new deals for the same period last year and a desolate fourth quarter, which saw only three companies come to market.

High yield pricing hasn’t changed much in the last 100 days, varying from issuer to issuer. On Jan. 22, Tennessee Gas issued 8% senior notes with an OID of 94.88; on April 27, Jarden Corp. issued 8% senior notes with an OID of 97.40. Other issuers have paid higher coupons, as high as 14%, and most OIDs clock in somewhere in the 90s.

Junk bond spreads have tightened, though. The spread on the Merrill Lynch High Yield Master Index sat at around the 1670 bps mark on Jan. 20. And after widening out to more than 1800 bps, it has now tightened up to 1423 bps.

On the loan side, deals that are not DIPs have started to pop up, including a $625 million credit facility for Michael Foods, underwritten by Bank of America. On Jan. 20, a loan deal of that size seemed like something of a fantasy.

The leveraged loan secondary has also firmed up. On Jan. 20, the average price on the LCDX index was 75, and it has hovered in the 70s for most of the time since. However, it crept up to 80 today, and some market participants predict it will continue its upward trajectory.

So, while these may be baby steps, and market participants caution that a rally does not a recovery make, our markets do seem to be in better shape now than they were when you know who took office.

Yes we … just kidding.

For more in-depth analysis of the leveraged loan secondary market and the high yield bond market, by LFN.com writers Richard Kellerhals and Matthew Sheahan, please see our features section.


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