News Column

Fitch: Strong Closed-End Fund Interest in Leveraged Loans as Credit Cycle Matures

July 1, 2014



CHICAGO--(BUSINESS WIRE)-- Link to Fitch Ratings' Report: Loan Closed-End Fund Spotlight (Increased Interest in Loan Assets as Loan Credit Cycle Matures)

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=748768

Increased demand from retail investors in leveraged loans due to more focus on interest rate risk is driving investment by U.S. closed-end funds (CEFs) in loan products, according to a Fitch Ratings report.

Since the first half of 2009, total assets for loan CEFs have increased by $23 billion and the overall number of funds has increased to 28 from 22.

The performance of leverage loans - both prices and default rates - has improved significantly since the financial crisis. This in turn has boosted CEF net asset values (NAV) and providing substantial asset coverage to rated CEF leverage. Since mid-2011, performance has been less volatile for the sector as secondary loan prices have settled at or above par given the favorable market trends.

However, risk appetite and leverage in the capital markets is increasing, with the current credit cycle resembling the time frame of 2005 to early 2006. While growth expectations for 2014 are more subdued compared to the last upswing, the first half of 2014 showed signs of credit expansion. Leverage among non-investment grade corporate issuers is also increasing. Fitch also notes that in the current low interest rate and low default rate environment, investors may regard the yield on loan products as a solid risk-adjusted return.

Fitch also notes that a larger number of funds have replaced term securities with variable-rate term preferred (VRTP) securities, a trend that Fitch expects will continue.

Fitch currently rates $3.8 billion of notes and preferred shares issued by ten loan CEFs. Fitch-rated loan CEF portfolios are fairly diverse in terms of both sector and issuer concentration.

The full report 'Loan Closed-End Fund Spotlight' is available at 'www.fitchratings.com.'

Additional information is available at 'www.fitchratings.com'.

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.



Fitch Ratings

Russ Thomas

Director

+1-312-368-3189

Fitch Ratings, Inc.

70 W. Madison Street

Chicago, IL 60602

or

Ian Rasmussen

Senior Director

+1-212-908-0232

or

Media Relations

Brian Bertsch, New York, +1-212-908-0549

brian.bertsch@fitchratings.com

Source: Fitch Ratings


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