LPC: Unknown buyer of leveraged loans causes market intrigue

Tue Jun 21, 2016 3:01pm EDT
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By Kristen Haunss and Lisa Lee

NEW YORK, June 21 (Reuters) - A mysterious buyer is causing a stir in the US leveraged loan market.

The buyer has caught the attention of participants in the typically self proclaimed "quiet" US$880bn-sized market by offering to buy portions of loans at more than 30 times the size of an average purchase, according to sources.

The investor, dubbed "OWIC Man" by some, is thought to be behind three auctions, known as Offers Wanted in Competition (OWIC), for about US$392m of loans this month, according to sources. The debt sought is often in chunks of US$50m or more. The average size of a loan in other OWICs this month was about US$2m.

In an OWIC, a list of loans and the sizes of the tranches a buyer is seeking to purchase is sent to investors who decide if they want to sell some of the requested loan and at what price. Banks will collect the offers and present them to the buyer who can choose to complete the transaction or pass. Debtholders may offer to sell the loan for higher than the current market price.

"We are asking this question: what are we missing?" said one portfolio manager, who along with his fellow loan investors, are intrigued by the auctions. "I feel wholly inadequate because I don't understand what he is doing."

Firms may use an OWIC to purchase loans quickly in order to set up a Collateralized Loan Obligation (CLO) or after receiving large inflows into mutual funds. It is a bit unclear, to even the best detectives in the loan market, what this strategy is, with the auctions including loans from at least eight different sectors and with different levels of seniority.

OWICs are not uncommon in the loan market - there were more than 20 this year - but the size of the loans sought and the stipulations around these three auctions are.

The price of at least two loans sought rose after the auctions, with the average bid of Fieldwood Energy's first-lien term loan rising almost 3 points to 87.5 cents on the dollar June 10 from 84.75 on June 8, the day before the OWIC, according to LSTA/Thomson Reuters LPC MTM Pricing. The average bid on Chemours Co's Term Loan B rose about 2 points to 97 on June 14 from 95.12 on June 13.   Continued...