Loan market's calm shows uncertainty caused equity's panic, B of A analysts say

By Sara Rosenberg

New York, Aug. 22 - While the equity market was in a panic this summer, the leverage loan market, which has "better access to information and more influence over management" remained relatively calm showing that uncertainty was behind the market panic, Banc of America Securities head of global markets research David Goldman and head of credit strategy research Jeffrey Rosenberg said in a research report Thursday.

Furthermore, investor demand has remained relatively strong in the loan market as people are drawn to the structural benefits of the investment, he added.

"Investors have actively used their clout with arrangers and issuers to demand tighter deal structures (and better deal pricing) in order to obtain greater influence over management," the analysts said. "Investors are actively telling arrangers and issuers what a deal structure needs to look like in order for them to participate in a transaction."

Since issuers need the liquidity, investor demands are being met. For example, F&W Publications accelerated amortization on its transaction due to investor pressure, Oriental Trading Corp. made its excess cash flow recapture covenant stricter in its recent deal and Headwaters Inc., Dade Behring, Commonwealth Brands, NCI, Petco and Hollinger International Publishing made pricing more attractive and added call protections or/and improved original issue discounts, the Banc of America analysts explained.

And, investor demand is not seen as disappearing in the near future as a rush of new deals are expected to hit the market after the Labor Day holiday.

But not all issuers and sectors are being welcomed with open arms, the analysts added.

"Media/telecom names, however, have disappeared from the calendar, given concerns about this sector," the analysts said. "Energy/power names, while still selectively raising loan capital, find the going tough due to the recent spate of negative headlines."

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