Bloomberg News

Loan Sales to Investors to Rise ‘Materially’ in 2012 Survey Says

January 03, 2012

Dec. 29 (Bloomberg) -- U.S. leveraged loan sales to investors will increase “materially” next year hinting that companies will have access to credit markets to refinance debt, according to the Loan Syndications and Trading Association.

Nearly 35 percent of bankers and money managers surveyed earlier this month by the New York-based trade group predict that the sale of so-called institutional loans, or debt bought by collateralized loan obligations, mutual funds and hedge funds, may increase to between $250 billion and $299 billion. Investors purchased this year almost $232 billion through Dec. 21, according to Standard & Poor’s Leveraged Commentary and Data.

Loan sales accelerated in 2011 to $373.1 billion, an increase of 58.5 percent from 2010, according to S&P LCD. Companies used $197.7 billion of the funds to refinance debt amid concern that credit will become scarce due to an escalating European fiscal crisis.

“People expected institutional issuance to climb,” Meredith Coffey, executive vice president for research and analysis at the LSTA said today in a telephone interview. This “could suggest that a lot of the activity taking place next year will continue to be refinancing activity.”

The U.S. leveraged loan market is expected to be stable in 2012, barring any major disruptions from the European crisis, according to the survey. About 73 percent of respondents say the crisis in Europe poses the biggest risk to loans.

European Threat

The European Central Bank’s balance sheet climbed to a record 2.73 trillion euros ($3.55 trillion) last week after it lent financial institutions more money in an attempt to keep credit flowing during the credit crisis.

About 44 percent of the survey respondents say loans bought by banks, or pro rata debt, would remain around $200 billion to $249 billion. Banks are expected to be the single biggest buyers of the debt next year with 34.1 percent of market share, ahead of CLOs at 18.6 percent, according to the survey.

“The biggest-single lender next year should be banks,” Coffey said. “Banks, particularly regional banks, have to put on assets.”

Leveraged loans are rated below Baa3 by Moody’s Investors Service and lower than BBB- by S&P. CLOs are a type of collateralized loan obligation that pool this debt and slice them into securities of varying risk and return.

--Editors: Faris Khan, John Parry

To contact the reporter on this story: Krista Giovacco in New York at kgiovacco1@bloomberg.net.

To contact the editor responsible for this story: Faris Khan at fkhan33@bloomberg.net.


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