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PowerShares Senior Loan Portfolio ETF (BKLN)

  • Thu, Feb. 19, 1:22 PM
    • The AdvisorShares Pacific Asset Enhanced Floating Rate Note ETF (Pending:FLRT) will be managed by Pacific Asset Management and seeks to maximize yield while targeting highly liquid loans and debt securities.
    • While senior bank loans are high-yield assets, they are less risky then the average high-yield bond since in the event of a bankruptcy senior bank loans are the first debt to be repaid.
    • "Driven by Pacific Asset Management's deep expertise within fixed income management, we believe FLRT will dynamically allocate to individual floating rate offerings while providing a keen discernment towards risk that can allow attractive monthly income while providing diversification outside of traditional interest rate risk," said Noah Hamman, chief executive officer of AdvisorShares in a press release.
    • Other bank loan ETFs: BKLN, SRLN, SNLN, FTSL
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  • Wed, Feb. 11, 11:26 AM
    • There's $791B of high-yield debt coming due in the next five years, according to Moody's, raising at least some concern as most expect interest rates to be anywhere from slightly to significantly higher.
    • The projections are the highest since 2010, when Moody's said companies faced $1.2T in debt coming due. Things worked out all right for that wave as borrowers were able to refinance, usually at far lower interest rates. This time around, the Fed and ZIRP may not be around to help.
  • Tue, Jan. 27, 1:02 PM
    • After first sweetening terms to try and attract buyers, Apollo Global yesterday pulled a $400M deal meant to help fund its purchase of Presidio Holdings. And Apollo isn't alone. "Anything with a little bit of hair on it is more challenged," says Pimco's Jason Rosiak. "People are being more selective."
    • Outflows from high-yield funds began about nine months ago, and accelerated last week, with $738M in net redemptions bringing the year's total to $1.7B, according to Lipper.
    • Into this environment, Dollar Tree is trying to raise money for its $8.81B takeover of Family Dollar, and PetSmart needs $1.9B of bridge financing to close its BC Partners purchase.
    • "It's going to be a buyer's market," says one fund manager. "We’ll continue to see a bit of a premium.”
    | 1 Comment
  • Nov. 26, 2014, 8:12 AM
    • Leveraged loan volume in November of just $6.5B, according to numbers compiled by Bloomberg, is set to be the slowest since the financial system suffered cardiac arrest in 2008. This follows volume of $30B in October.
    • Volume is plunging alongside prices, which fell more than 3% last month, forcing yields up to 6.2%, the highest in over two years. Regulators of late have also been taking a closer look at lending practices. Year-to-date, leveraged loan volume of $473B compares to about $700B for all of 2013.
    • Leveraged loans have returned 2.4% YTD vs. 4.6% over the same period one year ago, and vs. the 4.1% of junk bonds. Also a change from previous years, investors are quickly pulling money out of leverage loan funds - $15.5B YTD against inflows of $62.9B a year ago.
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  • Nov. 7, 2014, 3:56 PM
    • "Banks must not heighten risk by originating and distributing poorly underwritten and low quality loans," says this year's review of bank lending from the Fed, OCC, and FDIC. "Institutions that participate in this lending activity, without implementing strong risk management processes consistent with the 2013 guidance, will be subject to criticism by the appropriate agency.”
    • Full report
    • Leveraged lending represented most of the underwriting issues observed by regulators, though the share of criticized leveraged loans fell from 2013 as big banks adjusted to last year's guidance meant to curtail deteriorating standards in the lucrative (for banks) industry.
    • “Thirty-one percent of leveraged transactions originated within the past year exhibited structures that were cited by examiners as weak, mainly because of a combination of high leverage and the absence of financial covenants,” says the report.
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  • Oct. 22, 2014, 1:12 PM
    • The high-yield market "rebounded spectacularly" between last Wednesday's panicky action and the start of this week, says Martin Fridson. If one were to annualize the 1.32% total return from this period, it would work out to a 160.9% gain.
    • Some more numbers: The average yield in the BAML high-yield index topped 6.4% last week, and has dropped back to 5.9%, bringing the spread to Treasurys down more than 50 bps to 4.5%.
    • Barron's Michael Aneiro continues to see value in a number of sizable closed-end funds still trading at around double-digit discounts to NAV, notably the BlakcRock Corporate High Yield Fund (HYT +1.2%), the AllianceBernstein Global High Income Fund (AWF +0.2%), and the Wells Fargo Advantage Income Opportunities Fund (EAD +0.7%).
  • Oct. 1, 2014, 9:08 AM
    • "Banks have been scolded and they have been warned, and yet you are seeing a lot of signals that the market is heating up,” says a bank regulation consultant as the Fed - its guidelines mostly ignored by banks - is now taking a closer look at the steamy leveraged loan (also called senior loan or bank loan) market. “We have seen this bad movie before," says the consultant. "The issue now is, will the regulators deploy the rest of the arsenal of tools they have?”
    • Previously, regulators collected loan data in an annual survey, but have shifted in recent weeks, say sources, to monthly oversight.
    • “Terms and structures of new deals have continued to deteriorate in 2014," said the Fed's Todd Vermilyea in a speech earlier this year. A report last month from Barclays says covenant-light loans are on track to exceed 70% of issuance this year - a record. Another report says total debt levels for large LBOs have risen to 6.26x EBITDA in Q3 from 5.89x in H1. The average at the peak in 2007 was 6.23x.
    • Related ETFs: BKLN, SRLN, SNLN, FTSL
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  • Jun. 27, 2014, 11:48 AM
    • Losing $403M in funds last week according to Lipper, loan funds (also known as leveraged loans, senior loans, bank loans) saw their 7th consecutive week of outflows - this after a 95-week streak of inflows going back to June 2012. Popular for not just their yields, but the adjustable nature of said yields, a little digging finds the variable nature is tied to Libor - which won't rise until the Fed actually hikes. Further, most loans have Libor floors, which means their rates won't rise until Libor has moved about 75 basis points.
    • Municipal funds and ETFs, however, saw their eighth consecutive week of inflows, taking in $234M last week. ICI data show even bigger gains, with $798M of inflows last week vs. $805M the week prior.
    | Comment!
  • Jun. 13, 2014, 11:34 AM
    • Investors pulled another $1.2B out of leveraged loan funds this week, the largest outflow in nearly three years, and the 8th week out 9 that money has exited.
    • It brings net outflows YTD to $2.5B vs. $62.9B of inflows in 2013 when worry over higher rates had money pouring into the floating-rate instruments.
    • Previously: Trouble in loan fund land?
    | Comment!
  • May. 23, 2014, 7:36 AM
    • The selloff in BDCs is a buying opportunity, writes BDC reporter, noting the opportunity today to invest in a basket of BDCs (using BDCS as a proxy) at an 11% higher yield than just three months ago. The sector is yielding 43% more than high yield bonds (HYG) and nearly double floating rate loans (BKLN).
    • The higher yield, of course, reflects market concern distributions are set to fall (and BKCC and MCGC cut in Q1), but for the sector as a whole, distributions have been fairly stable over the last three years. Further, a number of players are under-leveraged or in growth phase, and occasionally have realized gains which are paid out as special distributions.
    • Keep this list around, says BDC Reporter, musing on those who may boost payouts over the next year: ACAS, ARCC, ACRE, ACSF, CPTA, FDUS, FSFR, FULL, HCAP, HTGC, MAIN, MVC, TAXI, PSEC, TCPC, TSLX
  • May. 20, 2014, 1:13 PM
    • Leveraged-loan ETFs last month had three consecutive weeks of withdrawals - the first such streak since the initial one of these was launched three years ago, according to Lipper. This streak combined with a recent general trend of outflows is a reversal from last year's record inflows as investors then - worried about higher rates - sought the funds out for their floating rate exposure.
    • Money comes and goes from all ETFs ... What's the big deal? Leveraged-loan (also called bank loan or senior loan) funds can't just buy or sell stocks as money flows, but instead their portfolios are made up of loans. “What happens if outflows continue? Who are you going to sell the loans to? It could disrupt that market,” says Dan Fuss.
    • "Realize that getting quick, easy access via ETFs to a tough-to-access market doesn’t happen for free," writes Brendan Conway.
    • Previous: Warnings on bank loan funds are not new
    | 1 Comment
  • May. 1, 2014, 7:57 AM
    • Rocket Software's pulling of $725M of loans that would have refinanced existing debt and paid a nice dividend to its P-E owners was at least the third canceled deal in April. Six months after the OCC warned banks over deteriorating underwriting standards, investors are demanding better terms and have pulled cash from leveraged loan funds for two consecutive weeks after 95 straight weeks of inflows.
    • “The balance of power, for the moment, has a little bit shifted to the buy side,” says money manager Jonathan Insull. "The market’s been taking a breather and people are using the opportunity to push back.”
    • Particularly looked down upon at the moment (see the Rocket deal) are so-called leveraged recaps, where P-E sponsors borrow against the companies to pay themselves a big dividend.
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  • Apr. 21, 2014, 12:54 PM
    • With Janet Yellen reassuring markets the Fed isn't in a rush to hike interest rates, investors broke a near two-year string of funneling money into bank loan funds, pulling out about $249M in the week ended April 16, according to Lipper.
    • "The door to sustained outflows is open now, and wider than it has been in a long time," says Lipper's Jeff Tjornehoj. "It's all about sustained low interest rates and the need for protection against rising rates just doesn't seem so strong anymore."
    • Bank loans (also known as senior, or leveraged loans) became a popular spot for money - the funds often pulling in $1B or more weekly last year - thanks to fears over higher interest rates. The loans are floating rate and theoretically should fluctuate along with the short end of the yield curve (though the floating-rate protection may not be what it's trumped up to be).
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  • Apr. 3, 2014, 12:46 PM
    • The SPDR Blackstone/GSO Senior Loan ETF (SRLN) dropped its management fee in a regulatory filing this morning, from 0.90% to 0.70%.
    • This cut leaves the First Trust Senior Loan ETF (FTSL) as the most expensive senior loan ETF on the market.
    • SRLN launched in April 2013 and none of the senior loan ETFs have seen positive returns in that time period.
    • Other senior bank loan ETFs: BKLN, SNLN
    | Comment!
  • Jan. 24, 2014, 3:42 PM
    • Falling yields this year have failed to boost demand for Treasurys, with Lipper reporting $102M withdrawn from government bond funds in the week ended yesterday.
    • A hot sector in 2013 stays hot though. Despite slipping rates, adjustable-rate loan funds attracted $730M last week, the 84th consecutive week of inflows.
    • The most popular ETF vehicles for adjustable-rate exposure (credit exposure also) are the bank loan funds: BKLN, SRLN, SNLN, FTSL.
    | 1 Comment
  • Jan. 6, 2014, 12:23 PM
    • Leveraged loan volume of $4.25T in 2013 was 22% higher than the previous year and trails only 2007's $4.89T of issuance, according to Dealogic. Helping issuance was big demand for product from investors looking not just for yield, but for protection from higher rates - protection leveraged loans can theoretically provide thanks to being floating rate.
    • Senior loan mutual funds and ETFs have now recorded 81 consecutive weeks of inflows.
    • ETFs: BKLN (the ETF product of the year in 2013), SRLN, SNLN, FTSL
    | Comment!
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BKLN Description
The PowerShares Senior Loan Portfolio (Fund) is based on the S&P/LSTA U.S. Leveraged Loan 100 Index (Index). The Fund will normally invest at least 80% of its total assets in the component securities that comprise the Index. The Index is designed to track the market-weighted performance of the largest institutional leveraged loans based on market weightings, spreads and interest payments.
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