Something happened last week that should have boosted leveraged loan primary issuance - or at the very least been a catalyst for change. It was the launch of a $7 billion structured investment vehicle (SIV), a deal led by Goldman Sachs.
If broader economic conditions were better, a successful SIV launch could have demonstrated a demand for paper, but "the market is not so simple that one successful SIV can boost investor confidence," said Neal Schweitzer, a senior vice president in Moody's Investors Service's syndicated loan ratings group. "As some suggest, like Fed Chairman Ben Bernanke, the volatility in this market will be around for a while. Debt investors are looking for more stability in prices and consistency. Investors are telling us, 'Show me eight to 10 [funds like that] with some consistency in closing and pricing and perhaps I'll stop reacting to strictly technical aspects.'"
Goldman's deal to restructure the $7 billion SIV, previously managed by U.K. hedge fund Cheyne Capital, has been reportedly cheered by investors because it shows that the credit market is dealing with its troubled assets. In the restructuring, Deloitte & Touche will price the assets, selling a minority part of the portfolio to a group of creditors who want to cash out, according to a statement from Cheyne. Deloitte will then sell the rest of the assets to remaining creditors who have already agreed to reinvest that money in a newly established vehicle set up by Goldman, which will hold the rest of the portfolio.
While some market participants call for more consistency and for broader improvements, others say one SIV is better than no SIV at all.
"I think any type of SIV will create more liquidity in the market, especially if this SIV's mandate is to pick up distressed assets, particularly the 2007 vintage. Once this backlog eases, it can only mean better things for the primary market," said a banker at a large Wall Street bank.
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