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CVC Credit Partners Raises €650M for Stressed/Distressed Fund

CVC Credit Partners today announced the final close of its Global Special Situations Fund, which focuses on stressed and distressed corporate credit, predominantly across Europe.

cvc credit partners logoRoughly €650 million was raised, which exceeds the €600 million target. The fund received commitments from investors in North America, Latin America, Asia, Europe, and the Middle East.

With more than €1.86 billion already committed to the strategy via separately managed accounts and its credit opportunities vehicles, CVC Credit Partners’ credit opportunities and special situations strategies now have total commitments of more than €2.5 billion.

CVC Credit Partners is the credit management business of CVC. — 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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After Brexit Slide, European Leveraged Loans Gain 0.09%; YTD Return: 1.82%

The European Leveraged Loan Index (ELLI) gained 0.09% yesterday (excluding currency).

The ELLI has returned -0.66% thus far in June. The total return for the ELLI in the year to date is 1.82%. — Staff reports


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Brexit: 5 Biggest Daily Declines in European Leveraged Loan Index

European loan index declines

The S&P European Leveraged Loan Index (ELLI) has taken a hit in the two trading days since the U.K.’s vote to leave the European Union.

Total return, excluding currency, for the ELLI fell 0.35% on Friday and dropped 0.38% on Monday, according to LCD.

Trailing only the Greek debt crisis of last summer, these movements mark the second- and third largest single-day declines since LCD started tracking daily returns three years ago. – Ruth Yang/Ruth McGavin

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Europe’s CLO Market Keeps Calm After Brexit, Prepares for Challenges Ahead

Instead of waking up to the prospect of buoyant markets, and the expectation that primary activity would restart in the wake of a Remain vote in yesterday’s referendum, CLO players were instead rudely awakened with the early morning news that the U.K. has voted to leave the European Union.

Now all bets are off when it comes to primary issuance as players try and make sense of the outcome, and figure out their next steps. And the handful of managers — Accunia among them — who were gearing up to price deals will likely have to wait and see how investors react.

European CLO issuance

That’s a deep shame, given how the market had recovered from the troubles of the first quarter. Had the vote gone the other way, June could have notched up the highest tally of CLO issuance this year, with several more transactions gearing up to price this month.

Month-to-date issuance currently stands at €1.64 billion, while year-to-date issuance stands at €7.21 billion, according to LCD, an offering of S&P Global Market Intelligence.

There was a clear sense of shock among market players this morning, but while some have forecast the migration of key asset manager operations to Ireland and/or the Continent, for the majority it is far too early to draw any conclusions, especially given the perceived length of any Brexit process. Instead, most prefer to focus on the positives — and perhaps dealing with so many regulatory knockbacks over the years has embattled them. A period of uncertainty and primary market standstill is inevitable, but that there are many reasons why issuance should resume again.

The fact that U.K. corporates form a smaller share of the European CLO market is a positive factor in the event of a U.K. recession. J.P. Morgan CLO research analysts estimated in February that European CLO 2.0s hold roughly 13.2% in U.K. assets, while Citi’s CLO research analyst Ratul Roy in a client Credit Flash today puts the average U.K. corporate risk at roughly 11% of a typical portfolio. Roy does, however, note that two of the five sectors these U.K. assets are concentrated in are retail and banking, which are likely to be more volatile than the other three — namely chemicals, food & beverage, and hotel & leisure.

Primary spreads, having marched all the way in to E+128 at the AAA level, are expected to widen again, which could impact arbitrage, although on the asset side presumably the news will stem further opportunistic transactions in the loan market. “Long-run demand will be driven by how much CLO spreads widen relative to loan spreads, ie. by future arbitrage, and the default environment not worsening significantly,” said Deutsche Bank CLO research analysts in a note published last night.

Warehouses
For those with a warehouse open meanwhile, the current volatility may present a good opportunity to get ahead with the ramp via the weaker loan and bond secondary market. “If you have capacity to deploy cash, it’s a good buying opportunity. But it is hard to see any new-issue deals coming for some time,” said one manager.

Sources suggest a number of new warehouses have been signed in the run up to the vote, although others had been held back by their more cautious first-loss providers, who preferred to wait until after the referendum before committing to a new facility. “I have been quiet these past few weeks,” said one investor. “I have cash stored up ready to invest in the credit markets, but I would have just looked stupid if I put the money to work the week ahead of the vote and it went the wrong way.”

The decision to wait looks eminently sensible now, but players remain hopeful that investors will remain engaged. Ramping conditions may have improved from a secondary perspective, but the key question here is the plausibility of the CLO takeout, and how much investors are going to care now about the legal ambiguity of a manager potentially based outside the EU, versus in two years’ time, noted one manager.

CLO investors will be a key part of restarting primary, and many have money to put to work. Some, especially at the lower part of the stack, may prefer to invest in the CLO secondary, but senior paper is harder to source here. The ECB-driven hunt for yield may also keep European investors focused on the market, even if some more-conservative parties hold back.

Citi’s Roy urges caution regarding secondary opportunities, noting that European CLO holders may not have the appetite for volatility. “With dealer balance sheets likely to be constrained, spread swings are likely to be amplified across the entire stack.”

Regulation and risk retention is the other key issue — and ironically concern around Paul Tang’s STS proposals pales in comparison with the huge task of ahead from a regulatory perspective. “Even if Brexit eventually results in retention requirements not being part of U.K. laws, they still of course will apply for EU investors,” said Franz Ranero, partner at A&O. “My concern is that yesterday’s vote puts us on the back foot in the current political dialogue regarding securitisation regulation, and somehow seen as lesser stakeholders.”

U.K. CLO managers have discussed with their legal counsels the loss of passporting privileges that allow them to qualify as sponsors for risk retention, and how to alleviate any investor concern around this issue to try and help get the primary market moving.

“Expect pre-baked originator switch mechanics to be included in all sponsor structures and less focus on the Tang report,” said John Goldfinch, partner at Milbank. “Loan prices are down, so there are lots of cheap assets to purchase, and it is difficult to find a more stable product for generating real return than a CLO, so I do see some positives, oddly enough.”

The negotiation of bilateral agreements between the U.K. and E.U. concerning the CLO market is considered achievable during the two-year exit withdrawal period, given CLOs represent a key source of funding for European corporations. Meanwhile, should the U.K. successfully negotiate staying in the EFTA, then the pressure is off completely, sources said. — Sarah Husband

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European Leveraged Loan Primary Market Stoic in Face of Brexit

While European leveraged loan players have been stunned by Brexit, the U.K.’s decision to leave the European Union on Thursday, there is a sense of stoic pragmatism that the market will remain relatively stable over the coming few months. For the moment though, participants have spent the morning trying to get some clarity amid turbulence in wider markets.

“This is not a great day to be able to take a balanced perspective,” said one banker. “We need to take at least the weekend to see the wider issues, but it’s too early yet.”

european leveraged loan returns

European leveraged loan returns

Although equity markets have plunged this morning — and sterling has dipped to its lowest level against the dollar in more than 30 years — in the loan secondary market bids are off only 1.5–3 points, though sources note the full impact of the referendum result has not yet been felt here.

“There are still names out there in the secondary market trading at par, and there are still buyers out there buying,” said one banker. “At the moment this is an FX story, but it’s not yet a loan market story — that won’t emerge for the next few weeks.”

Others agree that the loan market will hold its nerve in the coming few weeks, but that more time will be needed to get a full view of the prospects for new issuance and investor appetite. “We will find stability, it’s just a question of when,” said a senior banker in London. “Deals will get done. There’s not a huge market dislocation, we just have to take this day by day.”

In the immediate future though, a raft of potential opportunistic transactions that had been lined up to be launched last week has already been shelved. A number of sponsors were said to have been waiting until after the voting results to officially sign up for and mandate opportunistic deals, but arrangers say those deals that had been prepared are being put back into cold storage.

“We discussed an opportunistic refinancing yesterday,” said one banker. “That’s off the table, of course, as it was subject to an acceptable [Remain] outcome to the referendum. There were a lot of opportunistic issuers that wanted to benefit from the momentum in the market post-referendum. They were anticipating that Monday would be a very bullish day, and would be the right time to tap the market.”

But while opportunistic transactions are off the table, market participants are stoic, and remain hopeful that the European leveraged loan market will remain stable in the longer term. “There won’t be any dividend recaps launched today, but the market will recover,” said one investor in London. “People will still want yielding assets.”

Another fund manager agrees: “In the cold light of day, it is a long runway to anything actually happening. The uncertainty doesn’t help, but I don’t see a vast impact on earnings profiles.”

Others sources agree that in the long term, the loan market remains a stable option for investors and issuers, and that new-money transactions that are well-structured and positively priced will continue to get traction. In recent weeks, some arrangers are understood to have negotiated slightly better terms on their economic flex to help address the risk of a Leave vote, but it’s too early to know whether there will be a marked change in clearing yields.

Market participants are optimistic that new deals will soon come to the market to test appetite, although sources note that smaller transactions that rely on European commercial bank support will likely be easier territory than those that rely on institutional demand, given the potential distraction of relative-value plays elsewhere.

“The big picture will be that the wider markets are going to be very volatile,” said one account manager. “But at a micro level, the question is simply whether you want to lend to a company or not. There will be no real impact on European-only businesses.”

With only €1.75 billion of volume (of which €950 million is institutional debt) in the forward calendar, according to LCD, an offering of S&P Global Market Intelligence, there are few deals that have been pencilled in to face the new market paradigm in the coming few weeks.

The two largest deals in the pipeline are the financing backing the acquisition of Bilfinger B&F by EQT, and the senior and second-lien financing package to support Partners Group’s takeover of Foncia. The latter provides services for the residential real-estate market and is regarded as a strongly French prospect, while Bilfinger Building and Facility operates in Germany, Austria, and Switzerland, but also has operations in the U.K.
Following these deals, the auctions now out in the market could be more impacted by the Brexit vote, if sponsors become uncertain over valuations or financing costs, leading to deadlines being extended. “There are auctions coming through with deadlines in the next couple of weeks,” said one banker. “Will we want to hold people to that? I expect the market to be more pragmatic than that.” — Nina Flitman

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2016 European Leveraged Loan Issuance, by Issuer Country

European leveraged loan issuance domicile 2

U.S. issuers have been unusually active in the European leveraged loan market.

Through June 15, companies based in the U.S., as well as French concerns, have provided 18% of the activity. The U.K. follows with 16%.

At this time last year, U.S. issuers had provided only 9% of the total volume in Europe, well behind the 27% from the U.K. The European market has had a firmer tone than the U.S. during much of the first half of this year, which partly explains the year-over-year difference. – Ruth McGavin

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Citi Names Raja as Head of EMEA High Yield Trading

Citi have announced that Amit Raja has become Head of EMEA High-Yield Trading, in addition to his current responsibilities as Global Head of Distressed Trading and EMEA Head of Par Loan Trading, effective immediately.

This follows news that David Cohen, the now previous Head of EMEA Flow Credit Trading, will be leaving Citi. To ensure continuity, Cohen will continue to manage the investment-grade trading desk until the end of June, and is involved in the succession process. Cohen joined Citi in New York in 2010. — Luke Millar

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European Leveraged Loans Return 0.72% in May; 3rd Straight Positive Month

european leveraged loan returns

Leveraged loans tracked by the S&P European Leveraged Loan Index (ELLI) gained 0.72% in May (excluding currency), a third consecutive monthly gain. The market value component returned 0.32% in May, a more subdued pace than in the prior two months, but nonetheless a third consecutive positive mark after a seven-month string of losses.

The 0.72% return is slightly behind the 0.89% return seen in the U.S. leveraged loan market. As in Europe, leveraged loans in U.S. saw their third straight month in the black. – Staff Reports

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After Downsize, Apollo Prices €357M CLO via Barclays; YTD

Apollo has priced its €357 million ALME Loan Funding V CLO via Barclays Capital, according to market sources. The AAAs are understood to have priced at a 145 bps discount margin.

The transaction is structured as follows:

The transaction was downsized ahead of pricing, amid widespread concern from CLO managers across the market about how tough the collateral-sourcing environment is currently.

For Volcker the transaction will include voting, non-voting, and non-voting exchangeable tranches.

Compliance with European retention regulation is via the sponsor route, with Apollo holding a vertical strip.

The manager priced its previous European transaction in November via Deutsche Bank, and this latest deal marks its fifth European CLO 2.0. — Sarah Husband

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This story first appeared on www.lcdcomps.com, LCD’s subscription site offering 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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Leveraged Loan Price-Flexes Change Course in Europe as Market Strengthens

European leveraged loan price flex

The European leveraged loan market outlook brightened in April, thanks in part to a combination of an uptick in loan repayments and continued CLO issuance, both of which contribute to increased investor demand.

These influences come at a time when primary loan issuance also is improving, though not enough to overwhelm buyside appetite, according to LCD, an offering of S&P Global Market Intelligence.

One example of just how much sentiment has turned: Price-flexes, where the interest rate or discount on a proposed loan is changed during syndication, due to investor demand – reversed course in April, vastly favoring issuers (pricing was lowered during marketing).

In March, in contrast, it clearly was an investors’ market.

You can read more about how price-flexes work here, in LCD’s free Loan Primer Almanac.

This chart was taken from LCD’s monthly European Leveraged Loan Technicals analysis, by Ruth McGavin. It also details

  • Change in loan outstandings vs inflows/outflows
  • Monthly loan repayments
  • Amount of par loans outstanding
  • Loan forward calendar
  • Loan yields