If the Leveraged Loan Market Were a Dance...
October 29, 2009
If the leveraged loan market today were to break into an impromptu happy dance (oh, like you’ve never partaken in an impromptu happy dance) it would likely look more like, say, a Hustle than it would a … Breakdance.
Which is certainly not a comment on the loan market remaining stuck in any particular decade. The Hustle as a dance form simply seems to say, “Hey, we’re startin’ to have a good time here; we’ve got our new white suit on, we’re spinnin’ around and lookin’ pretty cool. But, hey, we ain’t goin’ nuts here.”
Breakdancing, on the other hand, sends a different kind of message altogether—something like, “Back up and let me show you what I got. And no lie, it’s way better than what you’ve got. And by the way, that white suit is whack.”
In other words: The Loan Market Hustle is about cautious optimism about the night (year) to come, but not necessarily the confidence that the hottest chicks in the room (investors) will be on your arm for the after party.
Investors and their return—or arrival—to the market was one of the main topics of conversation at the opening session of the Loan Syndications and Trading Association’s annual conference this morning, where plenty of cautious optimism was on display. Panelists participating in “The Future of the Leveraged Loan Market,” all four veterans of the market and the conference, spoke both of the need for a more diverse loan investor base and new CLO issuance.
“The loan asset class [was based on] an unstable business model prior to 2007,” said Rick Stewart, senior portfolio manager with Nomura Corporate Research and Asset Management. “No business can be sustained with only one kind of customer.”
He’s referring, of course, to the CLOs, and like many of the market players represented in Richard Kellerhal’s story on the topic (see featured articles), the LSTA panelists believed, or at least hoped, that new CLO issuance lies ahead for the market.
They also seemed to feel fairly positive about obtaining that much needed diversity in the investor base. Stewart noted that the downturn garnered the market short-term attention from risk takers looking for yield, i.e. private equity and hedge funds, who previously had little interest in the asset class. But the market’s rebound and stellar year-to-date returns have also lured investors such as pension funds, who have begun to see long-term value in leveraged loans and very well could stick around. Stick around for a 2010 that the panelists said they felt “constructive” about.
“I just hope that people don’t forget the lessons learned over the last couple of years,” said Andy O’Brien, co-head of leveraged finance for JPMorgan.
Err … do the Hustle.