What happened to the January Effect? The first month of 2016 marked the eighth consecutive month of red-ink for the S&P/LSTA Leveraged Loan Index (LLI) – a record streak. January’s negative 0.65% return was actually the strongest performance since last October but followed December’s 12-month low return of -1.05%.
As mentioned in the LSTA Semi-Annual Review, it is anticipated that the New Delayed Compensation Standardwill become effective for secondary par trades during the second quarter of this year, pending changes to legal documentation, settlement platforms and internal operational processes.
On November 4, 2015, Federal Reserve Chairwoman Janet Yellen testified before the House Financial Services Committee and, when asked, agreed to look into whether the Federal Reserve would support the concept of a “Qualified CLO”. (A Qualified CLO is subject to tests in six categories and, assuming the CLO meets all the tests, the manager can purchase and retain 5% of the CLO equity, rather than 5% of the value of all the notes.
According to the LSTA's 4th Quarter 2015 Secondary Trade Data Study, annual trade volumes totaled $591 billion in 2015 – a 6% decline from 2014’s all-time high of $628 billion. In looking back across all four quarters of 2015, trading volumes ebbed and flowed alongside shifting technicals and waning investor sentiment. The year will basically be remembered as a tale of two halves.
On January 25, 2016, an op-ed by University of Virginia Professor and Director of the McIntire Center for Financial Innovation David Smith explained the dangers of maligning leveraged loans. In his piece, Smith highlights leveraged loans as a critical source of financing for many American companies and a vital piece of the US economy.