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Bond-for-loan takeouts ramp up in 1Q19

Due to an error in pro rata calculations, the amount of loan debt taken out by high yield bonds, as detailed in an LCD News story earlier today, was incorrect. A corrected story and updated charts are published below.

Borrowers are issuing high-yield bonds to take out term debt in the highest volume since the first quarter of 2017.

Through March 14, completed bond-for-loan takeout offerings in 2019 have totaled $11.9 billion, according to LCD. With the inclusion of ADT’s pending offering, expected to launch this month, this figure edges to $12.4 billion. Of note, a larger portion of this projected total is weighted towards the repayment of pro rata facilities, with $8.3 billion of bonds printed for this purpose.

Bond for loan take out issuance

Taking a closer look at how bond-for-loan takeout offerings fit into the overall U.S. high-yield supply story, such deals account for 26% of the
nearly $50 billion of year-to-date volume. This is the highest percentage for the carve-out since the fourth-quarter of 2016, LCD data shows.

US High Yield bond issuance by proceeds

Thus far, new prints this year targeting the repayment of term debt includes completed deals for SS&C Technologies, Frontier
Communications, Community Health, and XPO Logistics.

The renewed emphasis on the fixed-rate high-yield asset class, at the expense of floating-rate leveraged loans, is clear via retail investor activity. So far in 2019 U.S. high-yield funds have seen a net inflow of $8.2 billion, while U.S. loan funds have seen a net withdrawal of roughly the same amount, according to Lipper weekly reporters.

Notably, retail investors have pulled money from loan funds for the past 17 weeks, totaling nearly $22 billion.

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LCD comps is an offering of S&P Global Market Intelligence. LCD’s subscription site offers complete news, analysis and data covering the global leveraged loan and high yield bond markets. You can learn more about LCD here.