Reuters | Investors seek return in stressed loans

Investor appetite for US leveraged loans has pushed average bids to a four-year high in the secondary loan trading market which is encouraging portfolio managers to consider buying stressed or distressed loans in the hunt for yield.

Buyers’ attention focussed on troubled buyouts struck at the peak of the market such as Energy Future Holding TXEFHE.UL (formerly TXU) and Harrah’s Entertainment <HAMLEO.UL last week after Clear Channel Communications’ CCENR.UL announced plans to strengthen its finances.

Clear Channel Communications outlined an amendment and extension to its leveraged loan and a high-yield bond sale to tackle looming loan maturities which pushed the price of its debt closer to face value or par in the secondary loan market.

Investors are targeting the debt of other leveraged companies which are which are expected to launch similar debt restructurings in a bid to boost returns.

Stressed loans have the potential for greater capital appreciation than stronger leveraged loans as average bids in the secondary market continue to climb closer to par or 100 percent of face value.

Bids for the 100 most widely-held loans are averaging just under 98 percent of face value, according to the LSTA/Thomson Reuters LPC Mark-to-Market data.

As the potential for price appreciation diminishes, managers and investors are looking for opportunities in riskier loans trading at deeper discounts to par….

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