The average price at which U.S. leveraged loans entered the secondary slid to 99.85% of par in November as the loan market cooled off considerably. The average price is down 39 bps from October’s average. It’s the lowest reading since July’s 99.75, and is only the second reading below par since August 2016, according to LCD.
November was a difficult month for both the secondary and new issue-markets, as trading prices cratered and new deal flow slowed dramatically. By count, 44 deals were allocated in November, totaling $26.1 billion, or $5.8 billion less than the monthly average of $32.9 billion over the first 11 months of the year.
The slowdown in issuance was not the only indicator of the souring market conditions in the primary, as price flexes shifted heavily in investors’ favor last month. The ratio of upward-to-downward flexes was 0.6x, the third time it has dipped below 1x this year. In addition to 18 total deals that received investor-friendly flexes, there were several opportunistic credits that were pulled from market or postponed, including for Sorenson, Jason, and Algoma.
Once in the secondary, the loans that freed to trade last month were hamstrung, along with the rest of the market. (The S&P/LSTA Leveraged Loan Index lost 136 bps in November, dropping to an average bid of 96.78 by Nov. 30, the lowest level in two years.) Loans that entered the secondary in November gave up 69 bps, on average, by the end of the month, and in a rare turn of events dropped below their average new-issue price.
While loans still gained on their break to the secondary, the pickup was limited, with the difference between the OID and break price coming in at just 51 bps, the lowest such number this year.
With the investor pushback on terms and the near disappearance of repricings this month (there were only four in November), the average issue price of deals allocating dropped 31 bps from October, to 99.34.
Spreads and yields moved higher, with the average spread widening 20 bps from last month, to L+366.
The average yield to maturity, at 6.47%, was the highest it’s been this year, with the exception of 6.97% during a sleepy July in which a limited number of deals allocated. Also contributing to the rise in yields was a 17 bps rise in LIBOR in November. (Three-month U.S. LIBOR was 2.74% as of Dec. 4. It opened 2018 at 1.70%.)
Drilling down further, the yield on the higher-rated credits (B+/B1 or better) gained more than B/B2 rated deals, narrowing the gap between the two to just 77 bps.

Source：LCD News