Banks reject mandates amid loan surge as settlement lengthens

Hugh Minch

Reporter

M&A bankers are turning down mandates and settlement times for US loan trades are extending as understaffed desks struggle to cope with record deal volumes, sources tell Creditflux. Loan trades are taking up to 23 days to settle, compared to around just 14 days in the period immediately pre-covid.

“Many of the players in the industry are understaffed and we have seen this strain manifest itself in loan settlement times,” says Ivo Turkedjiev, managing director at New Mountain Capital.

While most market participants expect today’s benign credit environment to continue, longer settlement times can cause issues during periods of volatility when the ability to position a portfolio quickly is paramount. CLOs are better protected than other funds, such as ETFs, which could find themselves unable to trade out of positions to make redemptions, which could be as short as two days.

Elevated M&A activity continues to pump an unprecedented supply of new loans into the market. Speaking at Creditflux’s CLO Symposium in September, AGL Credit Management’s chief operating officer Wynne Comer said that both June and July brought record-breaking volumes of new loan supply.

“Many of the players in the industry are understaffed”

Ivo Turkedjiev, Managing director | New Mountain Capital

“We’re running out of ways to describe it,” Comer said. “The stat for June and July leveraged loan issuance was $77 billion, which is also unbelievable.”

New Mountain’s Turkedjiev says the pace of loan issuance linked to M&A activity is unlikely to slow in the near term.

“My colleagues on the private equity side will tell you it’s never been busier and there’s a lot of deals out there,” Turkedjiev says. “It’s gotten to the point that bankers are so busy and understaffed that they’re actually turning down mandates, which is something we’ve never seen.”

The human infrastructure capacity issue is also impacting the CLO pipeline. Last month Creditflux reported that CLO managers and investors were having to schedule their deals with banks and service providers, including rating agencies and law firms, well in advance. Some of the service providers have had to turn down deals due to headcount limitations, and certain transactions have been forced to delay pricing past their target issuance date.

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Global credit funds & CLO's

October 2021 | Issue 239

Published in London & New York.