Nine is so passe, at least if you track secondary loan trades. Markit launched the LCDX Series 10 index last week, and like its predecessor, the Series 9, it will track 100 issues trading in the secondary market. At midday Tuesday, the Series 10 reached 97.07, with a spread of 404.4 basis points. A week prior, the Series 9 index stood at 93.98, with a spread of 398.01 basis points. This is the first time since Oct. 23 that the LCDX has topped 97.
In rolling over the index, Markit swapped eight names. Heading off the list are Freeport-McMoRan Copper & Gold; Knight; Claire's Stores; Insight Midwest Holdings; Solo Cup; Burlington Coat Factory; Centennial Cellular Operating; and Education Management. They will be replaced by Texas Competitive Electric; Alltel Communications; Harrah's Entertainment; Calpine; Bausch & Lomb; Level 3; Mylan; and Rite Aid.
A new LCDX index is mandatory every six months to keep the index in line with the current market. Furthermore, leverage loans enter and exit the market and get upgraded and downgraded all the time.
The initial coupon for the Series 10 is 275 basis points over three years and 325 basis points over five. The recovery rate assumption has changed from 75%, which was used on the Series 9, to 65%.
The next roll will occur on Oct. 3, one week after the Markit CDX HY index rolls.
In a Bear Stearns report released on the day of the Series 10 roll, analysts said that the new index provides "continuity to the synthetic loan market."
The release reiterated the dealer and investor community's support to loan-based structured products, Bear analysts said.
The spread and rating distribution have stayed practically the same from the previous series, the analysts noted. Relative to the CDX HY - the LCDX shares 45 names with this index - the new LCDX has a much lower tail risk. According to Bear, the index is most liquidly traded in the five-year tenor, although the three-year is traded as well.
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