At SuperReturn, the competition between private credit and syndicated markets was a hot topic as direct lenders discussed the decline in deal flow in the first quarter of the year. In the past, the two markets may have appealed to different issuers, but now both asset classes are seen as a viable option for those in the large cap space — private markets offering speed and simplicity, public markets for execution.

Still, others note, particularly in Europe, that the concept of private credit taking on the mega-deals — €500m and up — is still rare and direct lenders are turning more attention to the mid-market after compression of margins and documents at the upper-end.

There was also conversation on the growing convergence between the two markets and how lenders can react. Tristram Leach, co-head of European credit at Apollo, noted that the firm is building its business to be able to “pivot” between public and private markets, positioning analysts across products, for example.

“Moving with companies’ capital structures between public and private is very valuable,” he said. “It means our understanding of how to price risk, live with these companies and understand their stories is growing all the time.” 

The question on the mind of both direct lenders and bankers was one we’ve been asking for months: where’s the M&A? Most sponsors were quick to say that deals are still getting done (perhaps in an effort to convince the in-demand LPs in the room to continue to deploying in a slow year for fundraising), but there was plenty of candid chatter about the challenges ahead. Valuations are still too high and interest rates are not expected to drop meaningfully. And yet, there was talk of dry powder that needs to be put to work and LPs impatient to get their returns.

As one lender said: “I wouldn't call M&A robust, but the wheels are moving again.”

There’s one thing every asset class can agree on: conference attire. “I’m sorry, I didn’t realise dark blue suits were mandatory,” ABBA’s Björn Ulvaeus quipped as he took the stage to discuss his music IP venture Pophouse.

Meanwhile, in Barcelona…

Sentiment around the sidelines was generally bullish — as it often is at 25 degrees and three drinks events in — with most complaints centred on the need for more loan supply. “That’s big question mark now,” said one portfolio manager.

But there was mixed messaging on how that upcoming pipeline would shake out. Panellists and attendees worried that a packed election calendar in H2 would mean a front-loaded year for loans, and talk of LBO supply “green shoots” echoed chatter from previous quarters, with the only movement coming from sponsors potentially biting the bullet of higher funding costs in a higher-for-longer scenario.

But the valuation gap is thinning on higher quality assets, one banker said, even as more average asset sales remain contentious. “My M&A colleagues seem busy,” they went on, hopeful that the rest of the year would bring boosted LBO supply.

Over on the credit side, the theme was single name, not systematic, stress. What is driving dispersion in CLO performance is over-allocation into single names undergoing idiosyncratic stress, speakers said. “It’s the funds that have found themselves neck-deep in the Altices, the Intrums, the Ardaghs,” one attendee said.

Still, loan investors on the sidelines griped about recent credit quality, particularly on ex-private credit names, as well as margins grinding thinner after a couple pricings in the 300s. “But the Alter Domuses of the world are offset by the QSRPs of the world,” one lender said.

The loan market is showing resilience, despite CCC buckets “filling up a bit more than people expected,” as one rating agency put it. Buysiders described themselves as underweight the usual suspects (construction, some healthcare, chemicals). The worry now, some said, is the oft-feared lender-on-lender violence flourishing in the European market — or, ‘bad actor’ risk from new buyers entering the syndicate and pulling the rug from par lenders.

Return of rate cuts

On the macro side, the ECB finally took the first step to cut interest rates, shaving 0.25% off to hit 3.75%, the first cut since 2019. As the rate cut was widely expected, its impact has mostly been priced in. Plus the ECB indicated a more hawkish approach, as inflation is still a concern, rather than signal the start of a series of cuts.

However, the sentiment is that it could mean a gradual turning of tides, and some relief for highly leveraged borrowers or business models dependent on rates arbitrage.

“Hopefully it should lead to a recovery in dealmaking as funding costs fall,” said a buysider. “Still a long way to go through.”

High yield bonds

Bond supply was modest, but double digit yields on a double-B credit are rare enough that it’s worth taking notice. That’s the case for International Personal Finance’s new unsecured offering, a €341m 5.5NC2 priced at 10.875% (upsized from €300m).

The deal funds a tender offer for the outstanding November 2025s, with the upsize providing enough ammunition to fully redeem the issue and avoid leaving a stub. The 101.5 tender level offers a nice premium to the 100.78 pre-announcement quote, so one assumes acceptance will be enthusiastic.

Find 9fin’s Credit QuickTake here.

There are no high yield bonds currently in market.

Weekly high yield movers:

Request 9fin's weekly high yield movers here.

Leveraged loans

Several new repricings and launches this week show that energy is still high in the loan market.

German facility management company Apleona is out with a €835m recap (including a new €625m TLB3 and a TLB2 rollover amount of €210m), which will fund shareholder distributions and bolt-on acquisitions along with refinancing the €210m TLB2). Price talks are at E+400bps at 99.75.

The repricing wave also appears to be staying strong.

French mobility services company TSG is out with a €395m TLB (including a €75m add-on) with the aim of repricing and upsizing its current TLB — price talks are E+375bps at 99.875-100, down from E+392.5bps (with a 7.5bps ESG ratchet).

French drug delivery device maker Nemera launched a repricing of its €625m TLB, currently paying E+500bps (price talks weren’t available by the time of publication).

Motor Fuel Group is also seeking a repricing of its TLBs, with price talks for its (up to) €1.17bn TLB at E+400-425bps at 100, down from E+475bps, and price talks for its (up to) £732m TLB at S+550bps at 100, down from S+600bps.

Execution on these transactions also underlines the strong conditions prevailing at the moment — deals are being accelerated, talk is usually tightened, and even a debutant like Mediawan (see here for more) is willing to launch without the comfort of a pre-marketing.

Big tight cross border cap structures also provided some action, with Clarios and Medline announcing dual currency refi / repricings. Medline is taking out some CMBS debt as part of its deal, effectively moving the leveraged loans up the capital structure, and looks set to be the first euro TLB of the year to have a margin in the 200s at the time of writing. Read more on the deal here.

With €1.8bn of CLOs in primary last week (admittedly only one new issue), May marked the highest volume new issue month since January 2022. Meanwhile with CLO triple-A spreads hitting tights not seen for more than two years, there’s a strong market technical underpinning leveraged loan activity, boding well for when the M&A machine finally roars back to life.

Here are the leveraged loans currently in market:

Weekly leveraged loan movers:

Forward pipeline