July 5, 2017 / 1:11 PM / in a month

LPC-CSAM, Neuberger Berman and Barings auction off loans

LONDON, July 5 (Reuters) - Europe’s secondary loan market is focused on three auctions this week as three fund managers opt to sell portfolios of loans before the summer slowdown, banking sources said.

Credit Suisse Asset Management (CSAM) is in the market with the largest Bids Wanted In Competition (BWIC), totalling €108m from 24 names, across 40 tranches with bids due at 3pm on Wednesday.

The other two BWICs from Neuberger Berman and Barings are due Thursday and total €30m across nine names and €5.8m across three names, respectively, the sources said.

“The secondary market is quiet as everyone’s attention is on the BWICs. They’ve launched pre-summer before people disappear,” a trader said.

CSAM declined to comment. Neuberger Berman and Barings were not immediately available to comment.

Despite being slightly quieter as people get ready to go on holiday, launching pre-summer can be attractive to sellers not wanting to hold off until September, when it is unclear what market conditions will be like.

The secondary market has regained around 25bp this week after a slight softening of around 25bp-50bp a couple of weeks ago, when leveraged loan investors turned their attention to the primary market, which has been flooded with deals since June.

“There has been a tad of weakness in the secondary market but not too much and it is regaining ground, so it is not a bad time to offload paper. There is plenty of liquidity,” the trader said.

Despite the large number of deals in the primary market, the technical imbalance of more demand than supply still remains, especially after a €3.175bn financing for German drugmaker Stada failed to materialise following a failed buyout bid.

“The market feels hot so it is a good time to sell. A lot of dealers are disappointed there is not more primary and allocations have been harsh as have scalebacks, so technicals are not likely to change,” an investor said.

LIFELINE

Neuberger Berman’s BWIC is the result of a called CLO 1.0 and it is expected that similar BWICs will come to the market in the next year, as many CLO 1.0s come to the end of their life.

“No CLO 1.0s are expected to be outstanding by end of next year, so a whole bunch of BWICs are likely to come,” the investor said.

While some managers would favour recycling the assets of CLO 1.0s into new warehouses, many have no option but to put the paper up for sale via a BWIC auction, in a bid to show best execution, the sources said.

There is expected to be plenty of demand for the paper against a backdrop of increased managed accounts and CLO formation.

“Secondary is dead because of the BWICs this week. Everyone is focused on those as it is the only way to get meaningful paper,” the investor said. (Editing by Christopher Mangham)

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