LPC: Unknown buyer of leveraged loans causes market intrigue

By Kristen Haunss and Lisa Lee
NEW YORK, June 21 (Reuters) - A mysterious buyer is causing
a stir in the US leveraged loan market.
The buyer has caught the attention of participants in the
typically self proclaimed "quiet" US$880bn-sized market by
offering to buy portions of loans at more than 30 times the size
of an average purchase, according to sources.
The investor, dubbed "OWIC Man" by some, is thought to be
behind three auctions, known as Offers Wanted in Competition
(OWIC), for about US$392m of loans this month, according to
sources. The debt sought is often in chunks of US$50m or more.
The average size of a loan in other OWICs this month was about
US$2m.
In an OWIC, a list of loans and the sizes of the tranches a
buyer is seeking to purchase is sent to investors who decide if
they want to sell some of the requested loan and at what price.
Banks will collect the offers and present them to the buyer who
can choose to complete the transaction or pass. Debtholders may
offer to sell the loan for higher than the current market price.
"We are asking this question: what are we missing?" said one
portfolio manager, who along with his fellow loan investors, are
intrigued by the auctions. "I feel wholly inadequate because I
don't understand what he is doing."
Firms may use an OWIC to purchase loans quickly in order to
set up a Collateralized Loan Obligation (CLO) or after receiving
large inflows into mutual funds. It is a bit unclear, to even
the best detectives in the loan market, what this strategy is,
with the auctions including loans from at least eight different
sectors and with different levels of seniority.
OWICs are not uncommon in the loan market - there were more
than 20 this year - but the size of the loans sought and the
stipulations around these three auctions are.
The price of at least two loans sought rose after the
auctions, with the average bid of Fieldwood Energy's first-lien
term loan rising almost 3 points to 87.5 cents on the dollar
June 10 from 84.75 on June 8, the day before the OWIC, according
to LSTA/Thomson Reuters LPC MTM Pricing. The average bid on
Chemours Co's Term Loan B rose about 2 points to 97 on June 14
from 95.12 on June 13.
In the first auction on June 9, the investor sought to
purchase US$57.8m of chemical company Chemours Term Loan B;
US$61m of Fieldwood, the exploration and production company that
restructured its debt in May; and US$42.8m of Valeant
Pharmaceuticals C-2 term loan, the beleaguered pharmaceutical
company that on June 7 announced a first quarter net loss of
US$373.7m.
HASTE TO CLOSE
The large size of the loans sought and a quick three-day
settlement request was immediately met with surprise by market
participants.
"This one is out of control," one portfolio manager,
perplexed by the auction, said shortly after it was sent out.
"Interesting," said another.
The size of the loans in an OWIC on June 8, the day before
this auction, ranged from US$1m to US$4.75m, sources said.
Auctions may stipulate a seven-day settlement period, the
time frame recommended by the US loan trade group, the Loan
Syndications and Trading Association. It took 19.3 days to close
a loan trade in 2015, according to Markit.
With the market still unsure of the identity of the
mysterious buyer, two separate OWICs with large positions and
the same three-day settlement request hit the market for June 14
auctions.
The first, a US$75m six-tranche loan OWIC, sought another
US$54m of Fieldwood Energy's first-lien term loan, sources said,
noting the buyer may have only chosen to purchase a small
portion of Fieldwood in the earlier auction - this request was
just US$7m less than the previous one.
A second auction that day for US$155.3m sought nine names
including another US$50.8m of Chemours' term loan, sources said.
Six of the loans sought were Term Loan As, usually sold to banks
not retail or CLO investors, because they sit higher up the
capital structure, getting repaid before Term Loan B investors
during a restructuring, and typically pay a lower coupon.
It is unclear how much of these OWICs traded.
While the market has speculated about the identity of the
buyer, it still remains a mystery to most.
"What is he up to? How is he benefiting?" asked another
manager. "I just can't figure it out."