Bank loan market turns to new money, changed investor outlooks for cash

By Andrea Heisinger

New York, Oct. 23 - A more diverse group of institutional investors will be drawn into the bank loan market in response to recent changes, according to a panel discussion at the Loan Syndication & Trading Association annual conference Thursday.

The asset class will likely change, although panelists had different views of how volatile it will be.

"It will be more volatile because it's so much more institutionalized than historically," said Bob Wagner of Silver Point.

Chris Jansen of Stanfield Capital said there will be a different investor in the asset class, and he thinks it's changed permanently for the better.

There is new money coming into the bank loan market, most of it coming from pension and sovereign wealth funds, with hedge funds playing separately, said Jack Yang of Highland Capital Management.

The draw is that bank loans are as cheap as high-yield bonds, but with senior security, he said.

Scott Page of Eaton Vance Management called the current negativity a "blow off of a 20-year bull market."

"We're hoping in a year to 18 months we can see this as an aberration," he said. "Bank loans are [currently] high volatility. We're hoping to get back to some semblance of our very dull market."

Libor rates are also likely to change in the next year, panelists said.

Although there will likely be a drop in the benchmark before the end of the year from the current 3.5% level, it will likely spike up again as banks hit end of the year pressure, Yang said.

The panel also discussed whether leveraging was a good thing.

It's not a good thing, Page of Eaton Vance said.

"No one wants to sell bank loans. It's a scary thing weighing on the market right now."

Another panelist put it in more colorful terms.

"We have a wicked hangover right now," Wagner said. "We outdid ourselves and we're paying for that right now."

Talk turned to what could be done to bring in more cash.

More standardization and uniformity were mentioned as ways to demystify the bank loan class.

"The notion that leveraged loans are a toxic asset class - it's a dull, low-volatility asset class," Page said.

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