SC Lowy launches par loan trading business
12 October 2015 HONG KONG – Fixed-income specialist SC Lowy has launched a new par loan trading business to tap into the growth of the secondary loan market in Asia.
Par loans are debt instruments that are valued at 90% or more of their face value. Traditionally, commercial banks that originated such loans have held them until maturity, but more active risk management by banks in the region and a nascent market for collateralised loan obligations (CLOs) are increasing secondary trading volumes.
SC Lowy is adding this new product to its existing fixed-income platform, which already has a market-leading presence in sub-par loans and high-yield bonds. Par loan trading fits seamlessly into this model, allowing SC Lowy to efficiently leverage its current team and client relationships. Theron Alldis will lead the new business.
“We already make markets and create liquidity for banks and financial institutions on sub-par loans, so trading par loans are a natural expansion of our current platform,” says chief executive Michel Löwy. “It’s what we do.”
In the past, Asian banks have only been active in the secondary market when seeking to exit distressed or stressed situations, but, as they seek to manage specific country or industry exposure, increasingly they are also more willing to sell instruments that are trading closer to par.
There is a growing preference by many counterparties to transact through an independent intermediary, allowing them to retain confidentiality. SC Lowy not only offers this, but also has the balance sheet to act as principal in transactions.
“Bulge-bracket banks have limited interest in building an inventory in par loan products due to capital constraints and limited profitability,” says Löwy. “Even for these large financial institutions it is difficult to build the critical mass to operate in this space.”
The Asian market is small today by Western standards. According to estimates, total trading volume is around USD 3-5bn annually excluding syndications versus approximately USD 500bn in the U.S.
About SC Lowy
Private and employee-owned, SC Lowy is the only independent fixed income specialist with full investment bank capabilities.
Operating three distinct businesses — primary issuance, secondary trading and advisory — we focus on loans, bonds, trade claims and special situations. Our research covers energy, infrastructure, manufacturing, telecom and media, metals and mining, financials, shipping and real estate.
Headquartered in Hong Kong, with a team of investment professionals located across London, Seoul and New York, SC Lowy has built a global client network of more than 700 international and regional banks, asset managers, hedge funds, private equity and pension funds, family offices and corporations.