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As CLO Market Shifts Gears, European Leveraged Loan Spreads Shrink in July

european loans STM

With technicals heating up in the European leveraged loan market, all-in spreads for new-issue single-B rated leveraged loans shrank to E+491 in July from E+563 in 2016’s second quarter, and from E+601 in the first quarter, according to LCD, an offering of S&P Global Market Intelligence.

One factor driving the market last month: Relatively strong CLO issuance, which reached a “2.0 era” high of €4.56 billion in the second quarter. – Staff reports

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This story first appeared on www.lcdcomps.com, an offering of S&P Global Market Intelligence. LCD’s subscription site offers complete news, analysis and data covering the global leveraged loan and high yield bond markets. You can learn more about LCD here.

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S&P: European Leveraged Finance Mart Shrugs Off Brexit Vote as Borrowers’ Market Persists

The European leveraged finance markets have held up extremely well since the shock of the U.K. electorate’s vote to leave the EU, according to a report published on Monday by S&P Global Ratings entitled ‘Borrower-Friendly Credit Conditions Endure As The European Leveraged Finance Market Shrugs Off Brexit Uncertainty’.

The high-yield bond market has come back to life after a three-week closure due to the referendum, says S&P. Meanwhile, the result of the Brexit vote barely disrupted the leveraged loan market, and the shortage of new issuance so far in 2016 is even giving some private equity sponsors an opportunity to take dividends, S&P adds.

S&P says much of the resilience in the capital markets can be attributed to stimulus measures such as the European Central Bank’s (ECB) Corporate Sector Purchase Programme (CSPP), and will be aided further by the recently announced corporate bond asset purchase scheme (CBPS) from the Bank of England.

European CLO issuance topped €5 billion in July. That's the most in one month during the '2.0 CLO' era.

European CLO issuance topped €5 billion in July. That’s the most in one month during the ‘2.0 CLO’ era.

Credit conditions for borrowers became much friendlier in the second quarter of 2016, with an uptick in loan repricing transactions, according to S&P, and the agency expects the European leveraged finance loan and bond markets to remain favourable for borrowers since the need for new funding — driven by mergers and acquisitions (M&A) activity — remains lower than investor demand. This is largely the result of trade buyers continuing to dominate the M&A playing field, making it tough for private equity sponsors to compete with them on valuations and thereby reducing the need for new finance, the report adds.

S&P goes on to say that while borrowers have taken this opportunity to refinance expensive subordinated debt with cheaper senior secured issuance, the result has been an increase in the amount of senior leverage in loan-funded transactions. This move is reflected in the reduction S&P has observed in the percentage of deals with ‘6’ recovery ratings and an increase in those with ‘2’, ‘3’, and ‘4’ recovery ratings this year.

Improvements in borrowing conditions could result in a new wave of refinancings, repricings, and maturity extensions, but this could also enable private equity sponsors to achieve less-stringent transaction terms, S&P warns. Companies’ leverage could also increase, S&P says, and although overall debt-to-EBITDA multiples haven’t risen in 2016, senior leverage has continued to climb to its highest level since 2007.

However, rather than the borrower-friendly conditions extending to companies further down the credit scale, S&P predicts investors will remain focused on issuers’ credit quality, and will continue to push back selectively on terms they deem too generous or risky.

The report is available to subscribers of RatingsDirect at www.globalcreditportal.com and at www.spcapitaliq.com. If you are not a RatingsDirect subscriber, you may purchase a copy of the report by calling (1) 212-438-7280, or sending an e-mail to [email protected]. — Luke Millar

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This story first appeared on www.lcdcomps.com, an offering of S&P Global Market Intelligence. LCD’s subscription site offers complete news, analysis and data covering the global leveraged loan and high yield bond markets. You can learn more about LCD here.

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European Leveraged Loans Gain 0.02% Yesterday; YTD Return: 3.54%

The European Leveraged Loan Index (ELLI) gained 0.02% yesterday (excluding currency).

The ELLI has returned 0.21% thus far in August. The total return for the ELLI in the year to date is 3.54%. — Staff reports

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This story first appeared on www.lcdcomps.com, an offering of S&P Global Market Intelligence. LCD’s subscription site offers complete news, analysis and data covering the global leveraged loan and high yield bond markets. You can learn more about LCD here.

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European Leveraged Loans See Post-Brexit Rebound in July

european leveraged loan returns

European leveraged loans tracked by the S&P European Leveraged Loan Index (ELLI) gained 1.41% in July, not only recovering from the 0.6% Brexit-related loss in June, but producing the strongest return in four months.

This is the second time in 2016 that the loan market has demonstrated its resilience with a swift bounce-back — the Index gained 1.7% in March following a 1.22% loss in February, driven by spell of volatility across capital markets. – Staff reports

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This story first appeared on www.lcdcomps.com, an offering of S&P Global Market Intelligence. LCD’s subscription site offers complete news, analysis and data covering the global leveraged loan and high yield bond markets. You can learn more about LCD here.

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S&P: 107 Global Corporate Defaults so far in 2016

defaults by region

The global corporate default tally has grown to 107 as of yesterday, compared to 68 at this point in 2015, according to S&P Global Fixed Income Research. The last time the corporate default count was this high? In 2009, when there were a whopping 194.

The bulk of the 2016 defaults – 72 – come from the U.S., according to S&P. – Staff reports

This analysis is part of S&P Global Fixed Income’s weekly default analysis, which also details default by sector, a list/xls of 2016 defaults, and other analysis. It is available to S&P Global Credit Portal subscribers here.

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Beechbrook Capital Raises €100M for Direct Lending Fund

Private debt manager Beechbrook Capital has reached a first close of more than €100 million on its third private debt fund. Private Debt III is targeting €200–250 million in commitments from investors with a hard-cap of €300 million, said managing partner Paul Shea.

The latest vehicle in the series maintains the same investment strategy and will provide private debt, including mezzanine and unitranche, to lower mid-market buyouts in northern Europe.

beechbrookLimited partners in the first close include the European Investment Fund and British Business Bank’s investment arm as well as other European institutional investors. Beechbrook expects to hold a second close at the end of 2016 before the final close, which is now slated for 2017, to allow allocations from next year to come in.

The new fund is an English limited partnership, said Shea, adding that there will be at least two years after the U.K. triggers its departure from the EU before access to the single market becomes an issue. He said that the question of passport access to the EU single market wasn’t flagged as a major issue by investors ahead of the close.

Of more concern to investors, Shea said, was the short-term impact of Brexit on the U.K.’s economic outlook. The lower mid-market, Beechbrook’s specialty, is relatively insulated from the fallout focusing more on micro issues. Potential falls in asset prices could limit appetite for mezzanine debt, but that is balanced out by lower availability of senior debt and potential for improved returns from Beechbrook’s equity kickers, he added.

Beechbrook’s private debt fund focuses on European private equity–sponsored businesses with turnover between €10–100 million. Its loans generally range from €5–15 million per transaction and support acquisitions, shareholder re-alignments, and growth plans.

The firm has a separate UK sponsorless fund which reached a first close of more than £100 million in January.

One of the firm’s most recent deals was from the sponsorless fund, an £8.6 million loan to 4Most to support a reorganisation of shareholders and the business’ growth plan. 4Most provides regulatory and credit-risk analytics consultancy to banks, credit card providers, and other businesses with consumer credit exposure.

In total, Beechbrook has executed 36 transactions across the European lower mid-market and has fully exited 10 of those deals. — Rachel McGovern

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This story first appeared on www.lcdcomps.com, an offering of S&P Global Market Intelligence. LCD’s subscription site offers complete news, analysis and data covering the global leveraged loan and high yield bond markets. You can learn more about LCD here.

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European CLO Issuance Hits 2.0-Era High of €2.56B

European CLO issuance

Those predicting a post-Brexit referendum surge of European CLO issuance appear to have called it right—at least over the near term—with July racking up the highest monthly issuance tally in the 2.0 era.

Following the vote there were some concerns that the market would halt as investors hugged the sidelines, given the uncertainty. But the relative calm and stability of the broader markets kept players active, enabling issuers prevented from accessing the primary ahead of the vote to price transactions.

All told, July’s supply reached €2.56 billion, well above the €1.82 billion notched up during March, the next-busiest month this year. The previous monthly volume record in the 2.0 era was June 2014, which hosted €2.49 billion of supply, according to LCD. – Sarah Husband/Andrew Park

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This story first appeared on www.lcdcomps.com, an offering of S&P Global Market Intelligence. LCD’s subscription site offers complete news, analysis and data covering the global leveraged loan and high yield bond markets. You can learn more about LCD here.

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European Leveraged Loan Issuance: €35.9B through July 2016

european leveraged loan volume

The European leveraged loan market saw €35.9 billion in new issuance during the first seven months of 2016, down some 19% from the same point last year, according to LCD.

european leveraged loan volume monthly

July’s new-issue loan volume totalled €5.5 billion, an impressive showing considering the market first had to shake off the volatility from the Brexit vote in late June. – Staff reports

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This story is part of LCD’s European Loan Market Wrap-up, written by Ruth Mcgavin. It first appeared on www.lcdcomps.com, an offering of S&P Global Market Intelligence. LCD’s subscription site offers complete news, analysis and data covering the global leveraged loan and high yield bond markets. You can learn more about LCD here.

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European Leveraged Loan Default Rate Edges Lower in July, to 2.29%

european leveraged loan default rate

Despite Global Garden Products’ debt restructuring announcement at the end of the month, the default rate of the S&P European Leveraged Loan Index (ELLI) edged lower in July, to 2.29% by principal amount, from 2.54% at the end of June. In the 12 months ended July 31, the ELLI tracked €2.1 billion of institutional loan defaults and restructurings, up from €2 billion at the end of last year.

The ELLI default rate is calculated by summing up the par amount outstanding for issuers represented within the Index that have defaulted in the last 12 months, and dividing that by the total amount outstanding in the Index at the beginning of the 12-month period (excluding issuers that have already defaulted prior to this date).

For the purposes of this analysis, LCD defines “default” as (a) an event of default, such as a D public rating, a D credit estimate, a missed interest or principal payment, or a bankruptcy filing; or (b) the beginning stages of formal restructuring, such as the start of negotiations between the company and lenders, or the hiring of financial advisors. – Staff reports

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This story first appeared on www.lcdcomps.com, an offering of S&P Global Market Intelligence. LCD’s subscription site offers complete news, analysis and data covering the global leveraged loan and high yield bond markets. You can learn more about LCD here.

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Babson Prices $411M Risk-Retention Compliant (Europe) CLO

Morgan Stanley on Friday priced a $411 million CLO managed by Babson Capital Management, according to market sources.

The transaction has been structured to comply with European risk retention with the manager retaining a 5% vertical slice.

Pricing details are as follows:

Babson CLO

Up to 65% of the loans in the portfolio can be covenant-lite, according to the marketing documents.

The transaction will settle on Aug. 25 with a non-call period running for two years after and reinvestment period running four years after the close.

Year-to-date issuance is now $31.98 billion from 74 transactions, according to LCD data. July’s totals are $5.76 billion from 12 CLOs. — Andrew Park

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This story first appeared on www.lcdcomps.com, an offering of S&P Global Market Intelligence. LCD’s subscription site offers complete news, analysis and data covering the global leveraged loan and high yield bond markets. You can learn more about LCD here.