Institutional investors in the leveraged loan market were quick to point the finger at lodging and Las Vegas-based casinos as worrisome parts of the portfolio as a significant shift in levels emerged following the World Trade Center and Pentagon attacks. Credits such as Wyndham International, Starwood Hotels, Extended Stay, Mandalay Resort Group, Venetian Casino Resort, and MGM Mirage were all eyed carefully last week as loan investors have exposure to the lodging sector and specifically see Las Vegas-based businesses as especially vulnerable to both airline and resort trends.
Margaret Hui, portfolio manager at Oppenheimer Funds, said she is watching anything having to do with leisure and gaming carefully now that air travel has become such a concern for consumers. Sectors with improved scorecards include health care, food, and other non-cyclicals, according to Hui, who also noted that chemical and broadcast credits may also show signs of vulnerability to a further weakened economy in light of their cyclical nature. Gilles Marchand, portfolio manager at Aladdin Capital, noted that even though loan investors do not have exposure to airlines, as historically the credits are investment grade revolvers, the market does have exposure to airline suppliers and airline parts manufacturers. "Lodging is very soft," added Marchand, looking closely at a change in levels since the attacks. He noted that even though lodging loans should perform better than bonds, with more funds marking-to-market, softness in the loan market may appear more quickly than in the past. "Marking-to-market will affect the softness of a piece [of loan paper] and the quantity of redemptions, in turn affecting the liquidity of the market."
On a positive note, Andrew Hensel, analyst at Banc of America Securities, said he saw no panic selling in the loan market last week and predicted that investors that had money to spend prior to the WTC events will still look to invest it. "Our market did not fall out of bed," he said. One buysider said she has cash and she's looking to invest it, but right now she'll be waiting on the sidelines.