Exchange-traded funds that amassed junk bonds at a record pace in the first half of 2012 are now attracting unprecedented cash to buy speculative-grade loans as investors wager that a four-year rally in the notes is ending.
Blackstone Group LP, the world’s largest private-equity firm, is planning its first ETF that will mostly buy loans, and Pyxis Capital LP, spun off from Highland Capital Management LP, announced its first such fund last week. Invesco Ltd.’s PowerShares Senior Loan fund, started two years ago as the first ETF solely dedicated to loans, has grown to become the third- biggest speculative-grade debt ETF with $1.2 billion of assets.
Leveraged loans are the latest assets to benefit from ETFs that have attracted buyers from retirees to the biggest banks because they’re easier to trade than the underlying debt. Loans trade less frequently than bonds, are only available in over- the-counter markets to institutional investors and may take weeks to officially change hands after a sale. Shares of an ETF trade like stocks and prices are reported in real time.
Funding is conditional on selling its patent portfolio for at least $500 million, which Kodak said it “is confident it will achieve.” Converting the debt for use by the emerging company requires progress in the sale of two business units, and the resolution of the company’s U.K. pension obligations.
Pyxis Capital, which is based in Dallas, and has $2.4 billion under management, started the Pyxis iBoxx Senior Loan ETF on Nov. 7, the company said in a statement. The fund, which trades under the ticker SNLN, seeks to track the returns on the Markit iBoxx USD Liquid Leveraged Loan index.
Loan investors usually play a more active role in determining new covenants protecting creditors than bond buyers and may choose to allow a company to amend existing deal documents, according to Robert Cohen, a senior credit analyst at Los Angeles-based DoubleLine Capital LP, which oversees $45 billion in assets.