3Q 2015 European Leveraged Loan Market Analysis

The European leveraged loan market saw turmoil during the quarter, though it fared better than other asset classes. What’s in store for the rest of the year? LCD’s Ruth McGavin takes a look at the market.

Welcome to s&p capital iq’s quarterly update on the leveraged finance market i’m ruth mcgavin a member of the leverage commentary and data team in london i’m going to talk about how the european loan markets performed during the third quarter and what the prospects look like for the run to the year-end certainly the third quarter has not been plain sailing as

You can see from a glance at the monthly returns of the le that is the sp european leveraged loan index market value losses in august and again in september dragged overall returns down although neither month was as bleak as june the cause here of course was widespread volatility in the global financial markets arising from a multitude of different sources greece

Early on in the quarter then chinese equities in the middle plus a real mishmash of other factors by the end including the emissions scandal around vw across asset classes many different sectors have suffered and risk-averse investors have had plenty of scares to hide from totting up the european leveraged loan issuance that managed to come to market during this

Sticky and unsettled quarter total loan volume reached ten point four billion euros the quietest quarter since the end of 2012 institutional issuance meanwhile amounted to seven point six billion euros but the impact of this third quarter volatility has been greater in u.s. risk assets and in the european high-yield bond market than in european loans indeed loans

Have been comparatively stable in the secondary market despite the turbulence around them if you take a look at the table you can see the le just teetering over into the red in the month of september compared with much heavier losses elsewhere while the ellie’s year-to-date returns are well ahead even so loan market sentiment has undoubtedly cooled since the gung-ho

Second quarter as you will see from the chart clearing yields for high-yield bonds have been rising ever since the first quarter of the year but loans have now caught on to pushing the average reading up by nearly half a point to 4.9 sent in the third quarter from four point five percent in the second quarter this move put an end to repricing which were rampant in

The second quarter and absent in the third in fact all forms of opportunistic deal-making fell quiet in the set in the third quarter new issue volume to support refinancings tailed off to a mayor 1.7 billion euros the lowest quarterly reading for four years while there were no dividend recaps at all heading into the fourth quarter there is talk around the market

That some issuers are considering a dividend recap but market conditions will dictate whether or not they eventually step forward so with opportunistic deals on the sidelines third quarter volume relied heavily on m&a activity and looks set to continue to do so in the next few months compared with the previous two quarters third quarter m&a volume was

Down at 7.4 billion euros and on a year-on-year basis 2015’s m&a volume is lagging well behind by 20 percent however by deal count as you can see in this chart there has in fact been slightly more m&a activity this year for those who are wishing and praying for signs of expansion in the european loan market this is surely an encouraging indicator turning

Now to consider investor appetite the fundamental appeal of loans is still very much in place for a start they are less volatile and related asset classes as we’ve seen and in addition leveraged loan defaults in europe are very low at present with a lagging 12-month rate of just one point four percent as per the le on the clo front issuance has been sluggish in

September but there are a dozen or so managers that would like tools before the year end if the primary loan market is sufficiently active and if the clo arbitrage works demand driven by repayments has been tepid in recent months as you can see from this chart but several large repayments are in the works for the fourth quarter our sponsors forge ahead with ipos

All else being equal in the equities markets of course on a final note it’s instructive to look at investors to september’s dealflow some smaller deals especially those that were structured a few weeks earlier during the summer and therefore carried the hallmarks of a more bullish market had to work pretty hard to gain traction with lenders one borough had to add

A second lien tranche another had to juice up pricing off to the early bird phase but then consider vwr its large it’s liquid it’s bb rated with an attractive 2h recovery rating this credit had investors banging on the doors allowing it to flex down to price at the tight end and then to trade up on the break so it’s highly likely that we’ll see a mix of upwards

And downwards flexes in the fourth quarter even if bearish sentiment prevails as investors will demonstrate their appetite for larger and better rated credits while remaining picky and cautious on others this brings me to the end of my market review i hope you found it useful please feel free to email lcd with comments or questions you can download the slides at

Slideshare net if you’d like to know more about the leveraged loan market you can follow lcd on twitter facebook and linkedin or you can visit our free websites leveraged loan calm and high-yield bond calm the links are all in the info section on our youtube channel thanks for listening i hope you’ll join me again next time

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3Q 2015 European Leveraged Loan Market Analysis By LCDcomps