The primary market for leveraged loans sprang back to life in the second quarter. Inspired by the 15-month rally that lifted the average price of S&P/LSTA Index loans from an all-time low of 61.74 at year-end 2008 to 91.57 on March 31, 2010, arrangers and issuers unleashed a torrent of new loans.

All told, new-issue volume climbed to a 2-1/2-year high of $67 billion in the second quarter, from $43 billion in the first and from just $16 billion between April and June 2009.

The story is similarly ebullient in the institutional segment. Activity pushed to $44 billion, also the most since the final three months of 2007, from $31 billion in the first quarter and from $6.3 billion during the second quarter of 2009.

Private equity firms were particularly active between April and June. With market capacity higher and leverage levels climbing, both the number and size of leveraged buyout loans grew. The three largest post-2007 vintage LBO loans all came to market in the second quarter: Interactive Data Corp., at $1.46 billion; TransUnion LLC, at $1.15 billion; and Styron LLC, at $1.04 billion. LBO loan activity reached a post-2008 high.

More broadly, M&A showed signs of life, with overall loan volume pushing to $27 billion during the second quarter, the most since the third quarter of 2008, from $9.8 billion in the first.

Of course, all this volume took its toll on loan market technical conditions, especially after the Portugal, Ireland, Italy, Greece and Spain-related correction of May and June delivered a body blow to the equity and high-yield markets, slowing the pace of sponsor-backed initial public offerings and bond take-outs.

In response, the secondary traded off. After rocketing 51% from an all-time low of 61.53 in December 2008 to a recent high of 95.97 on April 15, Leveraged Commentary & Data's flow name composite slumped 5%, to 91.08, by June 29.

As these numbers imply, accounts are holding capital more dearly, driving new-issue clearing levels higher. Indeed, arrangers flexed higher the yield of virtually every new issue that hit market in June.

The average increase was roughly 150 basis points, pushing new-issue pricing to its highest point since last fall. Though each loan will be its own comp in today's scattered market, players generally say the bands for new issues are 5.75%-6.5% for loans to issuers rated BB- or better by both Standard & Poor's and Moody's Investors Service, 7%-8% for B+/B1 loans and 7.5%-9% for B/B2 loans, with lower-rated loans priced "by appointment."

In a bow to today's conditions, arrangers are reworking loans that were envisioned as large institutional tranches into multifaceted packages that tap into rejuvenated bank demand via an A term loan and, perhaps, credit-market demand with asset securitizations and bond offerings. Universal Health Services Inc.'s June M&A financing is the poster boy.

Arrangers cut the size of the six-year institutional term loan, originally penciled in at $2.85 billion, to $1.55 billion. To bridge the gap, the issuer doubled the size of the term loan A, to $1 billion, and will draw $322 million against its $800 million, five-year revolver. Senior notes, always a possibility according to a Securities and Exchange Commission filing, will total $400 million, while the company is adding a $275 million asset securitization to the mix.

On the whole, though, arrangers expect the summer to be slow and choppy, with any pickup in demand pulling loans off the calendar. The market's June chill has done more than just send new-issue spreads higher. Ambitious loan sizes and features are out. Wider flex caps and tighter structures are in. In fact, many participants expect the third quarter's "what's hot, what's not" list to be a mirror image of the first half, with a return to the more constrained market conditions of late 2009.

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Steven Miller manages Standard & Poor's Leveraged Commentary & Data business.