the credit crunch and the brave new world of loans reuters forum 13 november 2007
DESCRIPTION
Loans were stable, un-correlated with other credit asset classes… Until summer 2007 Price (% of par) Loan & bond bids (US and Europe) Source: LSTA/LPC Mark-to-Market Pricing, RLPC European Mark-to-Market Pricing, Merrill LynchTRANSCRIPT
The Credit Crunch and The Brave New World of Loans
Reuters Forum
13 November 2007
Panel discussion:• Meredith Coffey, Director of Analysis
Reuters LPC
• Ian Hazelton, Chief Executive, Babson Capital Europe Limited
• Tom Johannessen, Head of Secondary Sales & Trading, Dresdner Kleinwort
• Vijay Rajguru, PartnerGoldentree Asset Management
• David Slade, Head of Syndication Credit Suisse
Loans were stable, un-correlated with other credit asset classes… Until summer 2007
Pric
e (%
of p
ar)
Loan & bond bids (US and Europe)
Source: LSTA/LPC Mark-to-Market Pricing, RLPC European Mark-to-Market Pricing, Merrill Lynch
Bids on CDS and LCDS move together in Europe and the U.S
91
92
93
94
95
96
97
98
99
100
101
102
5/22/07 6/20/20077/19/07 8/16/07 9/14/07 10/12/07
LCDX 8CDX HY 8
U.S.: Bid levels (CDX HY, LCDX)
Bid
(% o
f par
)
Source: Reuters 3000 XTRA/CreditViews; Markit; LSTA/LPC MTM Pricing
93
94
95
96
97
98
99
100
101
102
103
104
105
11/6/06 1/4/07 3/1/07 4/30/07 6/27/07 8/22/07 10/18/07
XO-6LevXSr
Europe: Bid levels (iTraxx XO, LevX Sr)
Bid
(% o
f par
)
LCDS-cash loan relationship lagged in Europe and U.S.
93
94
95
96
97
98
99
100
101
102
11/6/2006 2/5/2007 5/3/2007 7/31/2007 10/24/07
Euro loan bid
LevX Sr
Bid levels (LevX Sr,, European liquid loans)
Bid
(% o
f par
)
Source: Reuters 3000 XTRA/CreditViews; Markit; LSTA/LPC MTM Pricing; RLPC European MTM Pricing
92
93
94
95
96
97
98
99
100
101
5/22/07 6/20/2007 7/19/07 8/16/07 9/14/07 10/12/07
LCDX US loan bid
Bid levels (LCDX and U.S. liquid loans)
Bid
(% o
f par
)
U.S. price correlation across CDS HY, LCDX
LCDX moves in near unison with CDX HY
y = 0.8555x + 14.024R2 = 0.962
91
92
93
94
95
96
97
98
99
100
101
102
90 92 94 96 98 100 102
CDX HY bids (% of par)
LCD
X bi
ds (%
of p
ar)
Source: Reuters 3000 XTRA/CreditViews; Markit
European price correlation: LevX-iTraxx Crossover(6) (Before and after launch of LCDX)
LevX-iTraxx XO bid correlation Nov '06-May '07
y = 0.2024x + 80.297R2 = 0.6173
100.7
100.8
100.9
101
101.1
101.2
101.3
101.4
101.5
101.6
101 101.5 102 102.5 103 103.5 104 104.5 105
Itraxx XO bid (% of par)
LevX
bid
(% o
f par
)
LevX-iTraxx XO correlation May '07-Oct'07
y = 0.8851x + 8.4185R2 = 0.9025
90
92
94
96
98
100
102
94 96 98 100 102 104 106
iTraxx XO bid (% of par)
LevX
bid
(% o
f par
)
Source: Reuters 3000 XTRA/CreditViews; Markit
How correlated will the loan market be?
-40%
-20%
0%
20%
40%
60%
80%
100%
Oct'05 - Apr'06 Apr'06-Oct'06 Oct'06-Apr'07 Apr'07-Oct'07
Euro bond-loan US bond-loanUS-Euro bond US-Euro loan
Correlation jumps across asset classes
Loan correlation – will it stick?
Presentation title – Date 20069
Questions
Thank you for coming