European LevFin Wrap — Markets knock back shot of volatility amid primary pause

Ryan Daniel

9 August 2024•4 min read

This is our weekly newsletter on all the latest trends, breaking news, and deep-dive coverage in European leveraged finance.

For everyone in liquid markets (do you really care about daily volatility as a private credit investor?), it’s been an angsty August.

You might have wanted to wind down with an Aperol, but were instead subject to a cocktail of market headwinds including, but not limited to:

The BoJ hiking — suggesting the famed yen carry trade is coming to a painful end.
The Fed standing pat — deciding against a rate cut at its latest meeting — and then soft labour data suggested the US economy was weakening.
Thinner volumes, as market makers swap their trading screens for sun cream.

Although the market has regained some of its losses at the time of writing (Crossover is at 320bps, over 30bps tighter from the extreme on Monday), recent volatility has been startling: The VIX jumped above 60 on Monday, its highest reading since the onset of Covid-19 and the failure of Lehman Brothers in September 2008.

You can read 9fin’s write ups on the fallout here and here — and find out why there’s a strong case for investing in credit.

According to a note from Barclays, weekly EHY outflows were relatively modest (29th percentile) but nevertheless the first outflow in five weeks, and consistent across both mutual funds and ETFs.

That said, recent volatility hasn’t dampened expectations for September yet.

A&Es and repricings should still come forth as well as three M&A transactions when primary resumes, according to a sellsider. Sources we’ve been speaking to expect roughly €20bn of bonds and loans to land in September.

Link: Table. Charts by Fatima Kane | fatima@9fin.com

9fin recently covered one of these major new money transactions, a packaging company, which is set to be split across euro leveraged loans and sterling bonds.

You can find our coverage on this name here and here.

The sellsider said: “It hasn’t changed our plans [for September] but what has changed are the increased expectations for a Fed cut in the market.”

“Now everyone is waiting for the important data points in September like the US inflation [CPI] print on the 11th and then the Fed meeting on the 17th. For any opportunistic refis, we need to get them done before then.”

In the US, primary issuance has taken a hit amidst the summer volatility as covered by our US colleagues here and here.

At least three deals have been postponed since the volatility hit, including loan repricing transactions from infrastructure company SBA Communications and theme park operator Sea World, in addition to a dividend recap deal from investment advisory firm Focus Financial.

ION Analytics was another notable withdrawal, pulling the plug on a $500m 2030 TLB deal (A&E from February 2028) due to market volatility.

For when primary markets heat up again, our latest relative value piece is a handy analysis in the context of recent pricing trends.

But in the meantime, there’s still plenty going on in the world of earnings as you can read about in our latest Digest — which also includes links to our standout secondary coverage from the week.