RLPC-Barclays tries to sell Landsbanki loan portfolio-traders

LONDON, Oct 8 (Reuters) - A 660 million euro ($899.4 million) portfolio of European leveraged loans was put up for sale at short notice late on Wednesday on behalf of troubled Icelandic bank Landsbanki LAIS.IC, traders said.

The loan portfolio is being sold by Barclays, with which Landsbanki had a Total Return Swap (TRS) financing programme, according to the traders.

Barclays as TRS provider nominally owned the loans on Landsbanki's behalf and had to sell them when Landsbanki was put under national receivership by Iceland, they said.

The portfolio sale follows another 200 million portfolio earlier in the week that was postponed to Friday, which traders said belonged to Babson Capital's recovery fund for stressed loan names.

Icelandic banks were active investors in leveraged loans and the 660 million euro portfolio contains a mix of euro and dollar-denominated first lien term loans of top European leveraged borrowers

Sellers are being forced to unload assets into a thin and illiquid secondary loan market. Average bids on Europe's top 40 leveraged loans slid again to a new all-time low of 77.98 percent of face value on Wednesday.

These levels are 55 basis points (bps) down from Tuesday's level. Europe's top 40 names have lost an average of 386 bps since the beginning of the month.

This means October could bring the market's heaviest losses so far this year, trumping September's 425 bps loss and February's 400 bps decline.

"The cash market is effectively dysfunctional, with enormous selling pressure versus buying," a trader said.

The LevX Series3 senior index of leveraged loan credit default swaps closed at 93.02-93.32 after registering heavy trade.

The iTraxx crossover index, made of 50 mostly "junk"-rated credits, traded at 638 bps in late afternoon. (Reporting by Zaida Espana; Editing by Paul Bolding)