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

After one of the biggest dividend recaps on record, which gave investors some new money to digest, the European leverage loan market returned to its repricing form. A further flurry of these hit the market again this week, but the pipeline is growing in the background, and a pick-up in pre-marketing activity bodes well for the coming weeks, sources told 9fin.

“The market has strength,” a buysider said. “But uncertainty coming from the Middle East and the US election is pushing borrowers to take opportunistic deals now.”

Overall, technicals in the broader credit market remain solid, as shown by an abundance of high yield issuance.

“Credit spreads are very tight at the moment,” a bond investor said. “Markets are shrugging off uncertainties but can’t go much further given how tight spreads are.”

As 9fin data shows, 2024 is on track to post one of the best years on record in terms of volume. More than €150bn of leveraged loans have been issued this year, with €16.6bn of loans in the market only in September — 9fin is readying in-depth Q3 reports on loans and high yield bonds.

Link: Image. Charts by Matthew Hughes | matthew@9fin.com

But the focus on repricings and refinancings has not shifted to more buyouts (yet), worsening the imbalance between new money supply and loan demand from CLOs.

According to Deloitte research, this disparity has ultimately seen euro-denominated single-B spreads pushed down to E+400-425bps in the first half of the year, with a 75-100bps saving compared to the previous 12 months.

“It's a combination of demand and supply,” a senior banker said. “There's a lot of appetite to invest and the CLO markets come back a lot. Also, base rates are starting to come down, giving a bit more confidence.”

Rampant CLO issuance has been the main driver for loan volume, with more than €53.64bn issued YTD between new issues, refinancings and resets, according to 9fin data.

Last week — the busiest this year — seven resets and three new issues tapped the market, adding €4.06bn to total issuance and overtaking the final week of April, which saw €3.56bn price.

Spreads on CLO triple-A levels remained stable at around Euribor+130bps or just below, taking some investors by surprise.

“I think arrangers have been retaining and therefore keeping levels stable. We have been trying to change some structures such as par sub and have been able to do that at least four or five times in the last month,” a senior debt investor said.

Looking at returns, the ELLI Index is up 8.3% year to date, but the 17.5% gained in 2023 still seems a bit far to reach:

Repricing deals took over the primary market once again, pushing the average margin on the market below the E+400bps barrier.

“We're now getting into the high threes and mid threes for term loan Bs,” another senior banker said. “We’re close to the lowest levels and near the threshold where it stops working for CLOs raising their AAAs.”

Our latest repricing report shows that 13 euro loans have repriced so far in Q3, with an average margin compression of 56bps, according to 9fin data.

Here are all the repricings that launched or priced this week:

This repricing window may not last long as refinancings and perhaps even new money will take more share again, sources suggested.

Several credits are supposed to tap the market in October for different financing purposes, as 9fin sources expect a French pharmaceutical company, a UK-software business and a Dutch chemical group to come to market, among others.

Following Belron’s jumbo €4.4bn recap, B&B Hotels launched a €350m fungible add-on to its existing €1.25bn 2031 TLB to fund a €524m payout to its sponsor Goldman Sachs.

Lenders told 9fin the recap was flagged during B&B’s February deal (see here) and they were keen on paper at E+425bps, but grumbled that the size of the distribution exceeded their expectations. Still, banks accelerated the commitment deadline today on B&B’s recap to Monday 7 October, from 8 October.

A bit of more new money also came from snack manufacturer Europe Snacks, currently in the market with a €495m 2031 TLB to back the buyout of One Rock Capital Partners from Seven2 (previously Apax Partners) — 9fin reported the news at the end of August. The deal is guided at E+450bps and 99 OID.

German packaging firm Fischbach launched a €350m TLB guided at E+475bps after pre-marketing the deals for about two weeks, as reported.

The loan is part of a €420m deal that will support its purchase by Onex Partners — with a €70m delayed-draw term loan (DDTL) alongside to fund earn-outs.

9fin reported the company pre-marketed off a slim EBTIDA of around €70m, sources said, well under the €100m threshold many buyside firms unofficially work with.

Elsewhere, it’s signed, sealed, delivered: package delivery company Evri ultimately shifted volumes from its euro TLB to its sterling SSN, in what originally was a £1.37bn package to partially fund its acquisition by Apollo. The UK-based company likely wanted to currency-match better by upping its sterling notes, sources suggested, adding that Evri had also tidied up its docs ahead of pricing.

The deal ended up being made up of a €805m 2031 TLB priced at E+425 bps, and bigger sterling SSN tranche of £735m closed at S+8125bps.

Private equity firms TPG and GIC agreed to acquire German energy metering business Techem, but it’s unclear whether the deal will land in the LevFin space. We reported earlier today that there could be scope for private credit to grab a junior debt piece.

What’s certain is that Techem requested a doc change on its €1.85bn E+375bps TLB, and specifically to amend the documentation to not trigger a change of control clause when that sale goes ahead.

Portability has been a feature we’ve seen in several deals this year. Most recently, industrial salts and chloromethane producer Nobian added a portability provision on its latest A&E, as sponsors Carlyle and Singaporean sovereign wealth fund GIC are planning to kick off a sale process later this year. 

According to sources, the A&E included a portability threshold at 5x total net leverage and a minimum 40% equity contribution requirement.

This uptick in portability provisions flags buyout firms’ growing confidence that they can overcome the deal-making bottleneck of the past two years, sources said.

“We’ve seen a step from last year, but it’s not as busy as people had hoped,” the second senior banker said. “Many are still talking about acceleration happening in three to six months, but that timeline has been pushed back repeatedly. Now, people are looking at 2025 as a potentially strong year.”

Here’s a look at what priced this week:

Here’s what is currently in the market:

Seven high yield notes launched only on Monday (30 September), signalling the strong momentum the credit market has been facing post-summer.

According Barclays research, September proved to be another strong month for PE HY with a total return of 1.0% (+0.7% excluding Financials) while the 3.7% return for the third quarter was the eighth consecutive quarterly positive return — the longest run post-2008 crisis is nine.

“Perhaps most interestingly though, the rolling three-month return has now been positive for 21 consecutive months and there has not been a drawdown in excess of 1% so far this year,” the research said.

This doesn’t mean all deals go through a smooth syndication. Italian baked good firm Forno d’Asolo, merged with Sammotana after the take over from Investindustrial, faced some lenders criticism on its €800m FRNs, according to two investors, but still wrapped up nicely after investors pushed the company to tighten docs. Forno won a relatively low coupon of E+375bps in return.

There are no bonds currently in the market.

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