content

Video: Leveraged loan volume, pricing in spotlight as M&A supply dominates

In the latest Capital Markets View video, LCD’s Luke Millar and S&P Global’s Chris Porter cover the main trends in European leveraged loans, including supply and pricing. Discussed this month:

  • Overall sponsored finance volume is down on the same period last year, though loan supply recovered a little in February. The leveraged finance market could be set for lumpy issuance throughout the year.
  • Supply has been dominated by M&A- and LBO-related issuance so far in 2019 — meaning investors have been served up some new-money paper — though recaps have also been seen recently from Ceva Sante Animale and HotelBeds.
  • Trade players have been flexing their muscles too, as Berry Group outbid Apollo for RPC, and Amer Sports also went to a trade buyer.
  • Leverage is creeping up on loan deals, but the buyside maintains it prefers transactions that carry higher leverage for a strong credit, to those from a weak company levered at 4.5–5x.
  • Market expectations coming into the year were for TLB spreads of 425–450 bps, but instead they have fallen to a 400 bps context. This could indicate managed accounts are the dominant players, as such pricing is sub-optimal for CLO managers focused on the arbitrage.
  • Indeed, CLO liability spreads are higher than at the end of last year, thereby putting the arbitrage under pressure. Note, the European CLO volume and deal count is running slightly ahead of the year-ago period.
  • CLO demand for loans remains strong, with managers adding more risk to maintain the blended spread on assets. They are also getting creative with deal structures this year — for example, some transactions have not included any B rated paper in the stack.
  • Downward flexes dominate the batch of loan deals to see price changes in syndication so far this year, indicating the current strength of demand and an issuers’ market. That said, the buyside is pushing back on docs and getting some movement here, perhaps emboldened by scrutiny on the asset class from central banks and the mainstream press.

The URL for the video: https://www.spratings.com/en_US/video/-/render/video-detail/capital-markets-view-march-2019

Luke Millar is European Editor at LCD. Chris Porter is Head of Loan Recovery & CLO Business Development, S&P Global.

Please feel free to contact Chris if you’d like a particular topic discussed in next month’s video.

Try LCD for Free! News, analysis, data

Follow LCD on Twitter.

LCD comps is 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.

content

European Leveraged Loans Return 0.67% in February

The European secondary loan market continued to rally in February as the S&P European Leveraged Loan Index (ELLI) returned 0.67%, bringing the year-to-date gain to 1.41%. This is the second-strongest return recorded for the January to February period in six years, falling just one basis point behind the same period in 2017, and roughly double the 0.68% posted at this time last year.

Of course, the strong gains in the last two months follow equally strong losses in November and December. To put the recent swings in performance into perspective, European loans gained an average of 18 bps in the last 12 months, and an average of 22 bps in the last 24 months. – Marina Lukatsky

Try LCD for Free! News, analysis, data

Follow LCD on Twitter.

LCD comps is 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.

content

US Leveraged Loan Default Rate Rises to Still-Low 1.62% in February

The default rate of the S&P/LSTA Leveraged Loan Index climbed to 1.62% in February, from a 17-month low of 1.42% in January, after Windstream Holdings and Ditech filed petitions for bankruptcy protection in the Southern District of New York.

By issuer count, the default tally is now 1.52%, up from a 15-month low of 1.44% last month.

Leading February’s defaulters by size, Windstream Holdings made a quick dash to Chapter 11 without a confirmed restructuring plan after a federal court ruled against the company in its long-running battle with Aurelius Capital Management over covenant default claims.

Despite the increase, the default rate remains well below the 3.1% historical average.

Try LCD for Free! News, analysis, data

Follow LCD on Twitter.

LCD comps is 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.

content

After December Hiatus, European CLO Market off to Deliberate Start to 2019

Europe CLO issuance

The market for collateralized loan obligations in Europe has gotten off to slow start this year, with one deal totaling €510 million, according to LCD. The scarce activity comes after a December with no new CLO issuance, and amid wild gyrations in the usually less-volatile global leveraged loan market.

Before December there was some €27.3 billion of CLO issuance in 2018, a record.

CLOs are an essential component of the leveraged loan investor base. Leveraged loans, which are undertaken by riskier borrowers (those rated BB+ and lower), now total the equivalent of some $1.35 trillion in outstandings, according to LCD, rivaling the high yield bond market. In the U.S. roughly 60% of these credit are held by CLOs.

Activity in CLOs could well pick up.

The pipeline should start to deliver some more meaningful supply this month, and leveraged loans backing Ahlsell and Proxiserve already are on offer to early-bird investors, writes LCD’s David Cox.

Try LCD for Free! News, analysis, data

Follow LCD on Twitter.

LCD comps is 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.

content

Free Webinar: Global High Yield Markets Opportunities, Pitfalls in 2019

webinar imageS&P Global Market Intelligence and LCD are excited to present on Tuesday, Jan. 29 a complimentary webinar on the  global high yield market: Opportunities and Pitfalls in 2019.

You can register for the event here.

Topics covered in this webinar include

  • An overview of 2018 U.S. high yield performance
  • Historical perspective on the late 2018/early 2019 downturn
  • Is the distress ratio signaling a recession? How reliable is this predictor?
  • Deal flow in the face of rising credit risk: 2019 outlook in the U.S. and European high yield markets
  • Risks and opportunities in today’s global high yield market
  • Ratings performance
  • Multi-notch downgrades
  • Fallen angel risk
  • Distressed and default outlook

Date
Jan. 29, 2019

Time
10-11 am EST

Speakers

Marty Fridson
CIO
Lehmann, Livian, Fridson Advisors LLC

Diane Vazza
Managing Director, Head of Global Fixed Income Research
S&P Global Ratings

  Nicholas Kraemer, FRM
  Senior Director, Global Fixed Income  Research
S&P Global Ratings

John Atkins
Director, Leveraged Commentary & Data
S&P Global Market Intelligence

Luke Millar
Director
S&P Global Market Intelligence

Ruth Yang
Managing Director, Leveraged Commentary & Data
S&P Global Market Intelligence

Try LCD for Free! News, analysis, data

Follow LCD on Twitter.

LCD comps is 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.

content

European Leveraged Loan Market Hits Record Size in 2018

The European leveraged loan market grew by €2.5 billion in December, bringing the asset class to a record  €181 billion at year-end, from €178.5 billion in November, according to LCD’s European Leveraged Loan Index (ELLI).

While issuance of new leveraged loans stalled in December, the Index grew, as a number of November launches allocated and joined the ELLI.

Overall, the size of the invested institutional market increased by 30% during 2018, as tracked by the ELLI, on the back of strong supply of M&A-related loans. Institutional new-issue volume for this purpose rose to a post-crunch high of €57.7 billion last year — up from €41.6 billion in 2017, and above the roughly €30 billion average between 2014 and 2016, according to LCD.

Opportunistic transactions such as refinancings and recaps declined significantly in 2018, to just €19.6 billion, from the €58.5 billion record-high tracked in 2017. Moreover, roughly 70% of the 2018 tally came from the first half of the year. – Marina Lukatsky

Try LCD for Free! News, analysis, data

Follow LCD on Twitter.

LCD comps is 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.

content

European Leveraged Loans Lose 0.74% in December, Gain 1.41% in 2018

europe loan returns

The fourth quarter of 2018 ended on a much more sour note than it began, as European leveraged loan prices went from holding steady in October to taking a plunge in November, followed by an even bigger sell-off in December.

In the last month of the year the S&P European Leveraged Loan Index (ELLI) lost 0.74%, which is the worst monthly performance in almost three years, following a 0.52% loss in November and a coupon-clipping positive 0.33% return in October.

Despite this decidedly poor showing, the European loan segment outperformed its U.S. counterpart, which returned a scant 0.44% in 2018, after a brutal 2.54% slide in December, according to the S&P/LSTA Index.

European leveraged loans returned 1.41% in 2018, besting not only the U.S. loan segment, but significantly ahead of European high yield bond returns, and equities.

Try LCD for Free! News, analysis, data

Follow LCD on Twitter.

LCD comps is 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.

content

European Leveraged Loans Lose 0.52% in November

europe leveraged loan returns

The European leveraged loan secondary market encountered treacherous conditions in November, amid a sharp sell-off in global financial markets. And while this weakness sent the S&P European Leveraged Loan Index (ELLI) towards its lowest return since just after the Brexit vote in 2016, it still outperformed its U.S. counterpart and other European asset classes.

In November the ELLI lost 0.52%, which is the worst return since June 2016 (when it declined by 0.60%), and only the second month in the red in 2018 (the Index lost 0.43% in June). On average, loans have gained 19 bps per month so far this year.

For the year through Nov. 30 the Index was up 2.16%, putting 2018 on track to be the worst year for European loan returns since 2011. For reference, the ELLI had gained 4.11% by this time last year. – Marina Lukatsky

Try LCD for Free! News, analysis, data

Follow LCD on Twitter.

LCD comps is 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.

 

content

Volatility, Yes, though European Leveraged Loans Faring Well vs High Yield, Equities

europe nov asset growth

Sentiment in the European leveraged loan market has taken a turn for the worse over the last couple of weeks, forcing loan issuers and investors to adjust — sometimes sharply — as a result. Loan traders have led much of this volatility, although the market looks to be taking its cue from larger moves in high yield, equities, and the U.S. market.

The secondary market illustrates the sudden shift in loan sentiment, with average bids on the S&P European Leveraged Loan Index (ELLI) rising from a summer trough of 98.41 at the start of July to a peak of 99.20 in the middle of October. Since then it has since traded steadily lower, hitting a mid-98 level this week.

Compared with other asset classes, a 75 bps fall would not be much more than a rounding error, and loans remain relatively calm when contrasted with other markets.

“High yield and the U.S. markets are importing volatility into European loans,” said a London-based fund manager. “Conditions in Europe are tough, but the market is still functioning.” Indeed, mapping the comparative performances of equities, high yield, and loans shows how the latter asset class continues to avoid the swings seen in the more heavily traded markets. – David Cox

Try LCD for Free! News, analysis, data

Follow LCD on Twitter.

LCD comps is 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.

content

As M&A lags, Europe’s PE shops look to leveraged loans, high yield for dividends

The European leveraged finance markets swallowed five new dividend-related transactions totalling €2.24 billion in November, as a lull in M&A activity in the fourth quarter allowed issuers to hit the market with opportunistic transactions.

For much of the year, such dividend-related issuance has not been possible as M&A transactions dominated the primary market. “We’ve just had a six-week period with no M&A, and it’s been the first real opportunistic window we’ve seen this year,” said one market participant. “When the window is there, why would private equity turn down the chance to return money to shareholders and protect its returns?”

europe sponsored loan volume

 

But while there was a small spurt in dividend recap supply in November, the dominance of M&A activity over much of 2018 means the volume of opportunistic recaps seen so far this year has still fallen well behind some previous years.

The loan market has hosted roughly €5.87 billion of dividend activity so far this year while the bond market has taken €1.41 billion, for a total of €7.28 billion, according to LCD. While this is higher than the totals recorded in 2015 and 2016 on this measure (at €3.67 billion and €5.61 billion, respectively), it is still way behind the record-breaking volume racked up in 2017, when the market was dominated by opportunistic activity.

The dividend recaps seen so far in 2018 have resulted in some €2.64 billion being returned to shareholders via the leveraged finance market, which is well below the average of €4.5 billion for the 2006–2017 period. By contrast, in 2017 roughly €8.15 billion was returned to shareholders from the proceeds of deals in the bond and loan markets. — Nina Flitman

Try LCD for Free! News, analysis, data

Follow LCD on Twitter.

LCD comps is 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.