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European LevFin Wrap — Hot dollar markets, Europe lukewarm
Karis Hustad
+Ryan Daniel
•8 min read
This is our weekly newsletter on all the latest trends, breaking news, and deep-dive coverage in European leveraged finance. Sign up for the newsletter here.
Last week’s Thanksgiving pumpkin pie barely had time to cool before the US market turned the heat way up.
Hope investors aren’t full yet! Credit: Pexels
A staggering 40 deals — 39 loans and one bond — hit the US market on Monday (2 December) with a total of $57bn on offer, shattering the year’s prior one-day record of $35bn worth of launches just weeks before on 18 November. And deals continued to land throughout the week.
A big chunk of the deals were repricings — a continuing trend seen on both sides of the pond. The rush was attributed to a combination of the window between Thanksgiving and Christmas, a growing confidence that rates will stay higher for longer, and uncertainty over the coming Fed meeting and potential for tariffs.
Read more on the recent dollar surge from our US colleagues here.
Meanwhile, European investors only saw a smattering of issuance this week. While 9fin sources say it’s likely to stay relatively quiet for the rest of the year, expect a few repricings and smaller deals before the holiday break.
“What could be done in Europe has been done,” said a sellsider. “In the short term you will see the US being busy, but then in the medium term as Trump’s economics have an impact — there’s uncertainty when base rates will be cut or could even be revised upwards.”
The USD blitz also included some familiar issuers — most notably UK-based private education company Nord Anglia, which priced a $500m TLB at S+350bps at 100.
"They're tapping market for acquisition financing — dollar markets are on fire right now,” said a buysider, as to why Nord Anglia would go dollars. A second buysider noted that the company had also been increasing exposure to names which link to USD. More from our US colleagues here.
The company also just came to the European market to A&E and reprice a €1.515bn TLB, now due 2032 with a margin at E+350bps (from E+425bps existing) at 99.75-100, as well as a roughly $1.492bn TLB, also due 2032, which includes a fungible add-on, with a margin at S+325bps (from S+400bps/S+375bps existing) at 99.75-100. Commits are due 11 December.
Looking ahead there is less certainty on how quickly activity will pick up into the new year, particularly given the political landscape in France and Germany.
Sellsiders say the prevailing issue standing in the way of new M&A activity is still the mismatch in valuation between buyers and sellers — something that could persist while the political and macro environment remains unclear.
Still, 9fin sources indicated that new money deals are ahead, though will likely be from varied sources, including more private credit to BSL refis.
“It depends on whether sellers are forced to sell,” the sellsider said. “Given the restructuring in the automotive and manufacturing industries, we also might see more [activity] in carve outs.”
We’ll have more on the themes of 2024 and an outlook ahead to 2025 in our year end leveraged loan and high yield wraps — keep an eye out for those dropping in the next few weeks.
European leveraged loan issuance was mostly made up of small add-ons — such as Ramudden seeking a €100m top up and Kersia with an upsized €100m add-on — while some trickier deals from last week wrapped up.
UK-based warranty provider Domestic & General priced a €545m TLB at E+400bps at 99.75, but the refinancing deal flagged up the risks presented by the UK Court of Appeal’s controversial judgments on motor finance commissions last month.
One lender who looked at D&G’s term loan said: “We have problems in investing in this loan. Financials look good but there are uncertainties coming from the Motor Finance case. Insurance and warranty providers could be hit by the court decision.”
Read our full analysis of this risk factor here. The company also priced £350m in SSNs at 8.125% at 100.
French cybersecurity firm Exclusive Networks also priced its €1.285bn-equivalent multi tranche deal, which included a €907m TLB priced at E+450bps at 99, $400m TLB priced at S+450bps at 99 and a €97.5m DDTL priced E+450bps at 99.
Further docs changes included permitted investments ratio basket with SSNLR < 1x inside closing date leverage (versus relevant leverage), asset sale de minimis basket at 15% (from 20%) asset sales designated non cash consideration at 20% (versus 25%), and a merger covenant updated to prevent the US co-borrowers from being merged into another member of the group, except if that entity is also incorporated in the US (or otherwise with all-affected lender consent).
UK-based veterinary pharmaceutical company Dechra also priced its £1.325bn-equivalent USD/EUR TLB with the following terms:
€800m TLB due 2031, priced E+350bps at 99.75, with two margin step downs of 25bps each at 4.90x and 4.40x 1L NL
$840m TLB due 2031, priced S+325bps at 99.75, with one margin step down of 25bps at 4.90x 1L NL
German jobs classified company Stepstone also priced its dual-tranche TLB, with the €1.35bn TLB priced E+450bps at 99 and the $600m TLB priced at S+450bps at 99.
Both tranches priced roughly in line with initial price talk, despite initial wariness over pre-marketing docs that included a ban on lenders forming co-op groups (that was taken out in general marketing).
Otherwise, buysiders had their work cut out working through quarterly earnings. BME, the UK building materials firm reported net leverage of 10.3x in Q3 24 — more than double the 4.2x it reported in Q3 23.
Exposure to the weak German construction market is particularly weighing on the business. Read the full analysis of the company’s earnings here.
European high yield bonds were similarly subdued, with only a few new issuances after a busy year. However, interest in the asset class remained strong, with inflows into HY funds continuing for the fourth week, according to Bank of America research.
When comparing currencies, spreads of dollar notes remain 40bps tighter than euros on average at 310bps. This can be attributed to the sheer size of the US market, which offers more liquidity and stronger growth prospects compared to the Eurozone and the UK. See more in our analysis of key data trends between US and European high yield here.
Meanwhile, Italy-based luxury interiors company Flo B&B Italia priced €550m of SS FRNs at E+3.875bps at 100.
This year investors have seen a wave of Italian high yield issuers taking advantage of lower rates. Companies lower down the rating scale chipped away at their maturity walls while sponsor-backed activity fired up LBOs and dividend recap transactions.
See our full analysis on the trend, and what’s ahead for Italian high yield issuers here.
One final trend of note: covenant pushback. This occurred in 25 European high yield bond tranches, across 18 borrowers, year-to-date — above levels observed in 2021. Read up on the market dynamics and impact on pricing here.
There are no high yield bonds currently in market.
