LONDON (Reuters) – The European secondary loan market entered uncharted territory on Monday as prices sank under 80 for the first time to reach 79.3 percent of face value amid further forced selling, RLPC data showed.
Steep recent losses continue to hurt mark to market funds and investors and threaten to trip triggers on the Total Return Swap programmes that finance hedge funds, which could create an even steeper spiral of losses.
A 200 million euro ($271.8 million) portfolio was shown around the market seeking Bids Wanted In Competition (BWIC) that pushed prices lower on Monday.
The portfolio is said to belong to a European Collateralised Loan Obligation (CLO) fund and includes mostly term loan B and C tranches and some term loan A paper in stressed and distressed names.
The portfolio comes hard on the heels of a 200-250 million pounds ($351.4 million) portfolio that was shown in the market last week that belonged to a troubled Icelandic bank that was seeking to raise capital, traders said. That sale was withdrawn.
Names in the current portfolio for sale this week include Auto Distribution, BASF Inks, Bawag, Baxi Holdings, Caradon, Chevrillon Phillippe, Dako, Desjonqueres, Dometic, Edscha, Global Closures, Hayes Lemmerz, HC Starck, IMO, Ista International, Jupiter, Kwik Fit, Lafarge Roofing, Linpac, Numericable, Ontex, Sanitec, SSP, Stahl, TMD Friction and Vinnolit.
The deadline is Wednesday Sept. 8 at 1200 GMT, although traders said that the seller was sounding out bids for the illiquid paper to find levels but would hit good bids.
“This is not the right time for this,” a senior investor said.
Average bids on Europe’s top 40 leveraged loans were 120 basis points (bps) lower than Friday at 79.3 percent of face value on Monday, RLPC data showed.
“I can’t see it ending unfortunately. There are just no buyers around. There are plenty of sellers and they are fire-fighting in different parts of the business,” another investor said.
The LevX Series3 senior index of leveraged loan credit default swaps (LCDS) slumped to close at 95.23-95.73 from a closing price 96.37-96.79 on Friday after rolling last Monday.
“The index has traded down a point or two in the day. It has outperformed the cash market but it’s now catching up with the cash market”, the investor said. (Reporting by Zaida Espana; Editing by Paul Bolding)