Stronger primary issuance and rising bids mask fragility in leveraged loan market sentiment
Secondary loan prices rallied in May, reopening the refinancing window and causing a spike in primary activity. Despite these highly positive markers, signs remain that the recovery may prove short-lived.
Recent loan trading levels suggest a gradual improvement after the softness seen earlier this year. As of 1 June, more than 36% of loans were trading above par, rebounding from a low of 13% on 2 March and peaking at 40% on 6 May, based on Markit data compiled by Debtwire.
The improvement in the secondary market led to a rise in bid prices across the board and in turn gave issuers more scope to reduce borrowing costs on existing debt through repricing. The result was a sharp increase in primary market activity, led overwhelmingly by refinancing transactions.