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The pall that descended over loan markets last August seems to be lifting. At least, that's the impression given by rising prices for secondary securities in leveraged finance markets. Standard & Poor's Leveraged Finance & Data unit calls the loan market "resurgent," as S&P's leveraged loan index registered a record monthly return of 3.7% in April.
The index is still down 2.25% for the year, however. Market participants attribute the positive tone to a debt pipeline that has shrunk dramatically since the beginning of the year. S&P estimates that the pipeline of pending offerings and those still stuck on balance sheets at about $93 billion for loans and $65 billion for high-yield bonds, for a combined $158 billion. That compares with an estimated pipeline of $350 billion last August. The reduction of the pipeline has occurred as banks have been more successful in selling large pieces of the debt they hold. Most recently, Citigroup Inc. and Deutsche Bank AG sold a combined $17 billion to private equity firms, including Apollo Management LP, Blackstone Group LP and TPG Capital, which has taken a lot of pressure off the market. Also helping has been the combined effect of several LBOs that blew up, beginning with JC Flowers & Co. LLC's proposed acquisition of SLM Corp., known commonly as Sallie Mae, and continuing through the recent implosion of Blackstone's $6.4 billion bid for credit card processor Alliance Data Systems Inc. Alliance Data said it received a notice from Blackstone in April that the firm was terminating the deal first proposed last May. ADS is suing Blackstone, alleging breach of contract, but the transaction, for all intents and purposes, is considered dead. Looking ahead, market observers note that much of the pipeline is concentrated among four deals: Thomas H. Lee Partners LP and Bain Capital LLC's bid for Clear Channel Communications Inc., Apollo portfolio company Hexion Specialty Chemicals Inc.'s deal for Huntsman Corp., Fortress Investment Group LLC and Cambridge Partners Inc.'s acquisition of Penn National Gaming Inc., and, the big kahuna, Ontario Teachers' Pension Plan and Providence Equity Partners Inc.'s buyout of Canadian telecom BCE Inc. Whether those deals get done is an open question. But sources say that the ultimate fate of Clear Channel, which is wending its way through the courts, may well decide the fate of the rest. -Vipal Monga
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