Leveraged Loan Trading with Sentiment Data

RavenPack | December 04, 2019

In this white paper, author Gábor Komáromi, Head of Fixed Income Analytics at RavenPack, turns his attention to how alternative data provided by RavenPack can be purposed for leveraged loan trading.

Extracting Value from Unstructured Big Data: Leveraged Loans

Leveraged loan issuers provide financing to already heavily-indebted borrowers and inhabit an important high-risk niche within credit markets, often playing the role of ‘canaries in the coal mine’ for wider asset market trends.

The good news is investors can now employ RavenPack to track and analyze most of the leading companies in the sector, enabling them to monitor rises and falls in sentiment, and amongst other things, potentially allow early detection of trouble spots. More broadly it can enable them to monitor the sentiment of debtors, further aiding leveraged loan trading or the trading of related debt securities.

The case of Ditech Holdings: could RavenPack have warned investors ‘the writing was on the wall’?

A useful case study serves to highlight the effectiveness of the platform in the role of providing an early warning system of a leveraged loan issuer. It concerns a company called Ditech, a high profile non-bank lender that defaulted in 2019.

RavenPack’s aggregated sentiment data extracted from online news sources about Ditech was plotted as a time-series of daily sentiment scores, which was then analyzed for clues about the company’s impending crisis.

The resulting chart - shown below - illustrates how sentiment (left axis) had started to dip well before the crisis took hold in January, and could have forewarned the canny investor something was amiss.

Leveraged Loan Trading

“By the end of October, sentiment moved back below zero and stayed low over the following few weeks without any major positive news.” Says Gábor. “In December there were four negative and only one positive news stories. Finally, the company defaulted on January 18, 2019.”

The wider investment community and leveraged loan traders alike are likely to seek out novel ways to analyze credit markets as U.S. corporate debt levels rise back up to levels commensurate with the great financial crisis of 2007-08, and one source of insights is likely to be the alternative data sector, of which RavenPack is a leading provider.

Leveraged Loans Events and Sentiment Data

This white paper also includes case studies about TransDigm Group Incorporated, one of the most widely held borrowers in CLO portfolios, and Fieldwood, another name that is not well known outside of "loan circles".

The inclusion of a comprehensive list of leveraged loan companies is part of the RavenPack’s strategy to further grow its fixed-income offering. Request a trial here.

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