Primary shortage spurs European secondary loan trading

A shortage of primary issuance is one factor driving growing volumes in the European secondary loan market, according to panelists speaking at this week's LMA conference in London last week. Matthew Craston, head of leveraged loans at credit manager ECM says that turnover in his portfolio, for example, has grown to between 5% and 10% a month recently, whereas the firm had previously not been active in the secondary market.

“You don't make money by just buying primary allocations any more,” Craston told the conference. “Now, even if we like a loan, we will often sell it and buy another that we also like but that is trading cheaper.”

Secondary loan marketing making officials said that secondary loan volumes had dipped somewhat this quarter compared to earlier in the year, but predicted that they would increase once again. “Relative value is the name of the game more than ever before,” said Amit Raja, head of high yield, loan and distressed trading at Citi. “Loan investors are now credit managers. They are trying to generate alpha rather than just make beta.”

During the same panel discussion on secondary loan trading, audience members were asked what the biggest impediment to new institutional buyers entering the European loan market. The largest group, 39%, said that it is a lack of transparency, while 24% cited the lack of ratings and 20% said wide bid-offer spreads. Only 16%, believe that the long settlement times are the biggest turn-off for would-be loan market participants.