LCDS: LevX roll may revive LCDS in Europe
One characteristic that both the ABS and leveraged loan markets share – apart from having had a hideous time over the past nine months – is that fledgling indices for both (the ABX and LCDS/LevX respectively) have been subjected to the most testing market conditions in memory very early on in their development.
LevX, Europe’s leveraged loan index, already faced significant challenges when it was launched in November 2006 and the turmoil in this market in recent months has only served to highlight certain shortcomings.
The news of the launch of LevX Version 2 on March 17 was therefore welcomed by the market, as it addresses the longstanding problem of cancellability of contracts. The restructured index will continue to reference the debt obligation rather than the borrowing entity and will include the top 75 names in the senior index (minimum loan size €500 million) and the top 45 names in the subordinated index (loan size €100 million). And the index contracts will be non-cancellable.
"The key difference between LevX Series 1 and Series 2 is that contracts are non-cancellable, or less cancellable," explains Tobias Sproehnle, director of indices at Markit. "The intention is that in a refinancing the contract will reference the facility that replaces the reference obligation.