Newsroom
> Press Releases| Back to Press Release Index |
1Q09 U.S. Loan Market Review: A scaled-back loan market chooses between survivors and nothing
New York, March 27, 2009 (Thomson Reuters LPC) – In 2008 the loan market searched desperately for a bottom, it appears that 2009 will be more about surviving. While a total meltdown of the financial system appears to have been averted by a series of unprecedented interventions by governments and central banks around the world, credit markets, other than for investment grade bonds, remain largely frozen. And if the near meltdown of the financial system was not bad enough, there is now the economy to consider. The U.S. economy shrank in the fourth quarter by 6.3%, a level not seen since 1982. Just alone in the fourth quarter corporate profits in the U.S. plunged by a record $120.1 billion. As a result the first quarter for the loan market was characterized by low issuance, a spiking default rate, and many issuers grasping at straws in order to survive.
Overall loan issuance came in at $105 billion in 1Q09, a decline of nearly 6.5% from last quarter and off 42% from 1Q08 according to Thomson Reuters LPC. With banks unwilling to underwrite deals, especially for riskier issuers, it was again the leveraged loan market that saw the biggest haircut. Leveraged loan issuance came in at a paltry $27.26 billion, a massive 57% reduction from the same time last year. New money issuance was a scant $16 billion. Ominously, this figure would have been much smaller if not for the $8 billion DIP financing for LyondellBasell. Plus, with collateralized loan obligations (CLOs) not only on the sidelines, but also dealing with possible defaults, there were no buyers of institutional loans and issuance in that segment was a non-existent $1.87 billion. The high yield bond market proved more resilient at $10.27 billion, up 69% from the same period last year, according to Thomson Reuters/EJV. More importantly, however, the bond market remained open in 1Q09 – not an insignificant turn of events, given its unrestrained collapse in 4Q08.
Investment grade lending was not immune either from the contraction seen in other segments in the loan market. In total, investment grade loan issuance came in at $61.8 billion, down 16% from levels a year ago. Bank consolidation and balance sheet contraction again took their effect leaving banks to focus largely their core relationships. Banks showed extreme reluctance o recommit to deals, where there was little ancillary business to benefit from. However, thanks to a very robust corporate bond market during the last quarter a number of issuers were able to issue bridge loans to finance acquisitions, especially in the defensive pharmaceutical sector. Nearly, 60% of investment grade lending in the first quarter was devoted to bridging issuers to the bond market, including Pfizer’s $22.5 billion bridge loan. However, these loans came at a price. Pfizer, at its current Aa1/AAA rating is paying 250 bps over LIBOR, a spread which was associated with highly leveraged deals as recently as 2007. With banks closely scrutinizing every single dollar they lend, it will be an intense battle of picking out key relationships, raising prices and scaling back on tenors.
The rest of the year is not expected to be any better for the loan market, especially more so due to weakening fundamentals. Nearly 39 issuers have already defaulted during the first two months of this year and the grim forecast from Moody’s Investors Service is that approximately 300 speculative grade issuers will default in 2009, up from 88 in 2008 and a peak of 184 in 2002. The rating agency forecasts that the default rate will be above 15% by November. In periods of higher defaults, recoveries tend to be lower, and this relationship is looking to hold in the current environment. Bankers and investors are increasingly concerned that recoveries in this cycle will be much lower than the historical recovery rate on senior, secured debt based on recently default experiences.
Issuers, especially those residing in the lower end of the credit spectrum, are scrambling to obtain relief from covenants, buying back bank debt and fighting tooth and nail to obtain crucial extensions on their loans. This battle is not proving to be easy given that their lenders are themselves severely capital constrained and are reluctant to provide relief to many of their clients.
The sharp pickup in defaults is taking its full measure on lenders’ portfolios, especially CLOs. As rating downgrades pickup speed and defaults increase, CLOs are now bracing themselves for the worst. With banks still under constraint, CLO buyers absent and with no new lenders stepping into fill the gap, the outlook for issuers relying on loans looks bleak. According to Thomson Reuters LPC’s estimates, between the institutional loan market and the high yield bond market almost $200 billion in debt is expected to mature through 2010. An additional $170 billion is expected to come due in 2011.
Key market statistics
 |
|||
| U.S. Total Issuance | 1Q08 Issuance ($Bils.) |
1Q09 Issuance ($Bils.) |
Percentage change (%) |
|
|||
| Overall*** | 179.1 | 104.68 | -42% |
| Investment Grade | 73.2 | 61.8 | -16% |
| Leveraged*** | 63.99 | 27.26 | -58% |
| Institutional*** | 16.21 | 1.87 | -88% |
| LBO* | 6.94 | 0.15 | -98% |
| HY Bonds | 6.07 | 10.27 | 69% |
| U.S. New Money Issuance** | 1Q08 Issuance ($Bils.) |
1Q09 Issuance ($Bils.) |
Percentage change (%) |
| Overall (new money)*** | 97.59 | 47.18 | -52% |
| I-Grade (new money) | 26.93 | 27.93 | 4% |
| Leveraged (new money)*** | 49.09 | 15.94 | -68% |
| Institutional (new money)*** | 15.25 | 1.07 | -93% |
League tables
| 1Q09 U.S. Overall Bookrunner |
|
||||
| Rank | Bank Holding Company | Volume | # of deals | Market Share |
|
||||
| 1 | BofA/Merrill Lynch | $25,155,600,164 | 64 | 25% |
| 2 | Citi | 18,388,713,335 | 22 | 18% |
| 3 | J.P. Morgan | 13,757,428,290 | 29 | 14% |
| 4 | UBS AG | 7,074,000,000 | 3 | 7% |
| 5 | Goldman Sachs | 5,913,000,000 | 4 | 6% |
| 6 | Barclays Bank Plc | 5,800,000,000 | 4 | 6% |
| 7 | Wells Fargo & Co. | 4,519,714,584 | 23 | 5% |
| 8 | Morgan Stanley | 4,166,666,667 | 1 | 4% |
| 9 | Mitsubishi UFJ | 1,741,666,667 | 2 | 2% |
| 10 | Royal Bank | 1,706,000,000 | 7 | 2% |
| 1Q09 U.S. Leveraged Bookrunner |
|
||||
| Rank | Bank Holding Company | Volume | # of deals | Market Share |
|
||||
| 1 | UBS AG | 6,808,000,000 | 1 | 25% |
| 2 | BofA/Merrill Lynch | 5,610,121,327 | 51 | 21% |
| 3 | Citi | 2,919,380,000 | 11 | 11% |
| 4 | Wells Fargo & Co. | 2,826,614,584 | 28 | 10% |
| 5 | JP Morgan | 2,457,094,956 | 16 | 9% |
| 6 | Deutsche Bank | 1,053,644,955 | 4 | 4% |
| 7 | KeyBank | 683,100,000 | 6 | 3% |
| 8 | Credit Suisse | 678,781,250 | 6 | 3% |
| 9 | GECC | 574,894,955 | 3 | 2% |
| 10 | Rabobank | 429,250,000 | 2 | 2% |
* Excludes bridge loans
**Includes only new financings, such as M&A, LBO, dividend payments, and incremental fund raising
*** Excludes secondary institutional sell-downs
About Thomson Reuters LPC
Thomson Reuters LPC's extensive suite of news and information solutions enables industry players to stay informed about market trends and facilitate business decisions. Thomson Reuters LPC's total focus and commitment to the loan industry have generated state-of-the-art products and services tailored to the loan market's growing needs.
Today, Thomson Reuters LPC's news, data and analytics span the United States, Europe, Middle East, Africa, Latin America, Asia and the Pacific region. Products and services include print publications, and online news, analytics and interactive databases. Thomson Reuters LPC's global coverage is supported by its presence in New York, London, Hong Kong and Tokyo.
On the Web: http://www.loanpricing.com
CONTACT: Ioana Barza and Maria Dikeos of Thomson Reuters LPC at Ioana.barza@thomsonreuters.com or maria.dikeos@thomsonreuters.com