Sellers outnumbered buyers on low coupon deals in the secondary market last week with investors seeking to ditch the credits and make room for higher coupon names in syndication right now. Masonite International was one name that traded down--its $1.175 billion term loan "B" fell to the 98-98 7/8 context from the 98 3/4-99 1/8 context the prior week. The loan is priced at LIBOR plus 2%. "It is very aggressively structured," said a trader. "With a LIBOR plus 200 coupon it is going to have selling pressure."
Other low coupon deals trading under par were Fresenius Medical Care's $1.75 billion term loan, which has been stuck in the 99-99 3/8 range for the past few weeks. It has a LIBOR plus 1 3/8% coupon. Avis Budget Car Rental's $875 million term loan "B," which has a LIBOR plus 1 1/4% coupon, is another low priced deal stuck under par; it is trading in the 99 1/8-99 5/8 range.
A trader said new single B credits that are part of the swathe of new issue are on average 40-50 basis points wider. "If you are a fund, you are going to get rid of these low coupon deals and swap them into deals with higher coupons," he said.
Despite a quiet market, higher priced loans traded an eighth of a point higher compared to the prior week as more buyers returned. Loans priced at LIBOR plus 200 basis points or less were stuck around par, while deals priced in the LIBOR plus 250 basis points range were trading at par, said the trader. Deals that are priced at LIBOR plus 250-275 basis points did a little better in the secondary, trading around 100 1/2, he added.
Dealers said trading levels started to stabilize at the beginning of the month after weeks of falling prices. Low coupon and covenant-lite deals have been the worst hit with many dropping below par (CIN, 6/26). But, covenant-lite deals have started to peter out following a flood of these deals the past few months (6/17).