Springer Science, ServiceMaster catch bids in quiet market; loan funds see $1.8 billion inflows

By Paul A. Harris

Portland, Ore., Aug. 22 - Cash loans were unchanged to slightly better during an ultra quiet Thursday session, a trader said.

The LCDX 20 index of bank loan credit default swaps climbed a quarter-point to 103¼ bid, 103¾ offered, according to a hedge fund manager.

In the muted market, loan paper that has been trading below par caught a slight bid, according to a trader, who mentioned ServiceMaster Co. and Springer Science + Business Media.

And vacations notwithstanding, the leveraged loan asset class continues to attract cash, according to a portfolio manager.

Lipper-AMG reported that bank loan funds saw $1.8 billion of inflows during the week to Wednesday.

Meanwhile, the primary market passed the Thursday session at a standstill, sources said, adding that there was no news to report.

Subpar names catch a bid

The Springer Science + Business Media Libor plus 400 bps seven-year first-lien covenant-light term loan was up perhaps an eighth of a point, the trader said.

Likewise, the Servicemaster Libor plus 325 bps loan due January 2017, the trader said.

"It was only one or two bids, but on a day as quiet as this it was enough to move the needle," the source added.

$1.8 billion inflow

In spite of the fact that the market has all but gone quiet due to participants taking vacations during the run-up to Labor Day, loan funds continue to attract cash, according to buyside sources.

Bank loan funds took in $1.8 billion during the week to Wednesday's close, according to a fund manager, who cited information contained in a weekly report from Lipper-AMG.

Meanwhile, high-yield funds saw huge outflows of negative $2.3 billion during the same time period, the source added, again citing information from Lipper-AMG.

Chasing returns

As Treasury rates have moved against the ultra-low coupons of higher quality, long-duration bonds that priced in the late winter-early spring rally in the junk market, loans have been "a no-brainer," according to a loan portfolio manager who spoke on Tuesday.

"If you're getting comparable returns in high yield and bank loans, of course you go with the senior secured asset," the manager said.

Now, however, high-yield spreads are widening, in part as a reaction to the substantial northward move of Treasury yields since mid-June.

That could change the way managers are allocating cash, sending more cash into junk and less into loans, the buysider said.

In a market where returns are the paramount consideration, junk could easily attract more cash than loans as junk spreads continue to normalize toward more historic levels.

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