European LevFin Wrap — Kicking the can down to October

Alessandro Albano

13 September 2024•6 min read

It’s been a slow start of the month for the European leveraged loan market. Expectations of a hectic September have fallen short with just a few refinancing and repricing transactions landing in the primary market.

“The size of the pipeline was overstated, and included a few marginal ones,” a buysider said. “Some are waiting to see how the current ones in the market do."

Mega LBOs like the ones of DB Schenker, Deutsche Bahn’s logistics unit, Sanofi’s carve out of its consumer health division and Brookfield’s take over of Grifols, are all supposed to feed investors by year-end, but smaller buyouts could find their way to market sooner.

“Banks seem to be guiding towards October now and pushing some deals to next year,” another investor said. “For bigger deals, banks want a more favourable market backdrop.”

UK-based Advanz Pharma is planning to bring €500m-€700m to syndication, financing the take over by Ontario Teachers Pension Plan (OTPP) and Nordic Capital, as reported.

The financing will be split between leveraged loans and high yield bonds, with talks over financing taking place since Q2.

French snacks manufacturer Europe Snacks is also ready to bring €500m to market to back its acquisition by New York-based One Rock Capital, as reported.

In early August, we reported UK package delivery service Evri is about to debut in the broadly syndicated loan market, with a £1.4bn financing package split into £900m-equivalent of euro-denominated loans and £500m in bonds.

Investors got a taste of a multi-billion LBO early in the summer, with Vodafone Spain’s €5bn takeover by UK-based private equity firm Zegona. The Spanish carve out brought €3.4bn of debt to market, but that was a tough call for lenders as concerns raged over the company’s credit outlook.

At IPEM Paris 2024, market participants were not feeling particularly bullish that mega deals will be pouring back. You can read the LevFin takeaways from the two-day conference here.

A blockbuster year for volumes

We may have had fewer than expected buyouts this year, yet the leveraged loan market in Europe is on track to post one of the best years on record in terms of volume.

As per 9fin data, the market has broken through the €140bn level in loan issuance, already topping the numbers we had in 2021 — remembered by many as possibly the best year in recent history for leveraged loans.

Link: Table. Charts by Alexandros Chatzigiannis | alexandros@9fin.com

Refinancings have accounted for most of this, but A&Es momentum could be tapering off.

As 9fin’s Josh Latham and Ryan Daniel write, favourable market conditions, such as the decrease in average margins on new single B-rated euro TLBs from 465bps in 2023 to 410bps in Q2 24, has encouraged more borrowers to pursue refinancings.

Read the A&E report here.

Leveraged loans

It’s not a buyout but UK-based ice cream business Froneri made the headlines this week as it has brought to syndication €4.5bn-equivalent of euro and dollar denominated deal this week to push out maturities on its existing debt.

The PAI Partners-backed group has not faced any backlash on the credit side, yet tight pricing might be difficult for investors to swallow.

Both tranches are offering 99s (99.75 OID on the euros and dollars with a 0.5% floor on the latter) and a two-handle, with the euros currently guiding at E+250bps-275bps and the dollars at S+225bps-250bps.

“There’s no real debate about the credit for us, it’s more the fact that it’s so tightly priced,” said one buysider to 9fin. “But it’s counterbalanced by the extension and we don’t hold a lot, so we’ll probably roll.”

An A&E came from UK industrials company Rubix, now in the market to push out maturities on its €1.505bn term loan by two years to September 2028.

Price talk on the transaction is at E+425bps at 99.5-100, but investors are split over when the expected recovery in industrial activity will come, and how quickly Rubix will benefit.

We’ve also had a couple of sizeable repricing deals from Element Material Technology and Univar that have called into question whether we’ll see another repricing window at the same scale as previous ones this year.

“There’s an opportunity for some repricing for the stronger names,” a CLO manager said. “But I’m a bit skeptical that things can tighten to 350bps given the sentiment pre-summer, and it doesn’t feel like the world is in a tighter place now than it was then.”

Here’s a look at what priced this week:

Here’s a look at what’s currently in market:

Weekly leveraged loan movers

High yield

It’s a different narrative for junk bond investors, as high yield companies rushed to market to capitalise on the ECB’s rate decision.

The Frankfurt-based central bank trimmed its deposit rate by 25bps to 3.5% this week, and although it was fully anticipated, there was little guidance on future steps.

Barclays research expects the next cut in December and that cuts will take place at a quicker rate from this point on, whereas for October’s meeting options are still open.

“Growth forecasts are softer, with a dim consumption view,” according to the research. “We expect the next cut in December, but October is 'live'. Our confidence in a faster easing pace from January 2025 has increased.”

Most of the latest transactions in the HY space were refinancing, but we expect the market to be tapped by borrowers that need to finance recent takeovers, as in the case of Italian companies Acqua & Sapone and Forno d’Asolo.

Here’s a look at what priced this week:

There are no high yield bond currently in the market.