A flood of new money coming into the market and solid borrower performance is fueling a red-hot secondary market. Dealers noted that a variety of flow names, including Metro Goldwyn Mayer, Fidelity National Financial and Novelis all have ticked up in recent weeks, with one trader noting that dealer inventories are getting thin as investors soak up paper without selling. "Every time we go out with an offering, we get listed," he said. "Whatever you had going into the holiday weekend has all been bought."
Sankaty Advisors, Highland Capital Management, Kingsland Capital, ACA Capital and Apidos Capital are among the managers that have priced new collateralized loan obligations in the past two weeks. The institutional players are being backed by incredible demand for the liabilities on these deals with the triple-A tranches being bought in a range of LIBOR plus 25-26 basis points. Bankers are also reporting heavy warehousing for future deals. In addition, one manager noted that there is demand from managed accounts and banks seeking to put assets to work in a low-yield environment.
Another factor is the strong performance of the market, outside of the much troubled auto-sector. Fidelity, which has consistently traded below par and as low as 98 is now quoted at par. The company surprised the market by paying down $225 million of debt, said a trader. In May, MGM was quoted at 98 1/2-99 traded at 101-101 1/4 this week. "There's no whiff of defaults out of the flow names. They are all doing well," he said.
