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Leveraged loan markets are made of windows, and repricing deals have made a forceful comeback for a second time this year giving CLOs managers some headaches as they seek to maximise equity returns.

According to 9fin data, 13 euro-denominated loans have repriced since the beginning of May, for €10.2bn. Together with the first repricing wave in January, the year-to-date calculation amounts to €31bn for 39 deals.

“Technicals are so strong that they allow borrowers to tighten from initial talk and still get the deal done,” a loan manager said. “If it's trading 101 or higher, it’s ripe for repricing. It shows the market is willing to take less yield on it than just at par.”

(This European LevFin wrap matches with the start of the Euro 2024, so get ready for more football-themed wraps)

This second repricing wave has seen large cap single B companies like Nouryon, Ceva Sante and McAfee slashing coupons down to E+350bps, pushing stronger BBs to E+325 bps – see Entain.

Live deals that could break the 400bps barrier are IU Group, TSG Solutions and Silae with others being talked in the mid-4s area.

But how low can it go? A portfolio manager said “it all depends on CLO triple As”, and when cash arbitrage stops working “they will stop buying loans and everything will wind back up again”. European CLO triple-A tranches are currently pricing in the low 140s, according to 9fin data, but there are signs the market could move 5bps tighter.

Here’s a list of repricing deals that came to market from May:

But why is this happening now? The Fed meeting held this week, or the latest US CPI reading have not provided enough support as was the case in January, when bullish bets on rates fuelled an extraordinary rally in the different spectrums of financial markets.

Strong technicals have paved the way for a record pace in CLO creation: 19 investment vehicles priced since the beginning of May and 68 since the start of 2024, 9fin data shows.

We reported last week that new European CLO issuance in May reached €5.87bn, the highest monthly total since January 2022.

“There's a lot of liquidity on the CLO side and everyone has money to invest,” a buysider said. “But managers are just struggling to deploy that money, so they don’t want to lose exposure to good businesses that they already have.”

“If you get repaid it’s hard to find something better,” they added.

If demand has run hot, new-money supply has lagged. Extensions and refinancings still account for the majority of use of proceeds in the market as per 9fin numbers, even if LBOs have now rebounded from last year's rock bottom levels as private equity shops have started deploying dry powder.

According to a Goldman Sachs' research, receding recession concerns, abating inflationary pressures (despite the first quarter’s upside surprises) and a healthy financing backdrop have boosted the appetite for M&A.

Tech, healthcare, energy, and financials have captured the eye of investors in Europe.

9fin data shows that €4.24bn of euro-denominated buyout loans have priced so far in Q2, across eight out of 11 LBOs closed year-to-date.

Sellsiders speaking with 9fin say the M&A pipeline has built up significantly and to expect a busy summer.

Yet, we haven't seen an European LBO with more than €1.5bn of funded debt in the market since Synlab, and presumably won't have it in the following next weeks either.

Among the last to close a buyout financing this week was VolkerWessels's carve out ETT (V&N Group), which issued a €465m E+400bps 2031 TLB to back its acquisition by Triton Partners.

Universidad Europea has also brought fresh LBO supply to the market, with a new €675m term loan B due 2031 backing a buyout by EQT Partners. The deal priced at E+375bps and 99.5 OID from a price talk of E+400bps.

EQT put in a €1.675bn equity contribution to buy a 64% stake in the company from Permira, which maintains a 35% minority stake, alongside a roughly 1% stake held by management.

Dutch optical retailer Nexeye's buyout TLB is in the market, talked at E+450bps and 99 OID for €325m — the loan will finance the acquisition by KKR from previous owner 3i Group.

Three dividend recaps also launched this week.

Investors hunting for new money deals can look into Hungarian pet food manufacturer Partner in Pet Food's €750m TLB, German real estate service provider Apleona's €835m TLB — talked at E+400bps or the €1.75bn equivalent TLB launched by Dutch non-food discount retailer Action Retail, one of the largest euro TLB borrowers.

Moving back to refinancing deals, Phenna's £845m-equivalent dual tranche TLB — £100m of delayed draw term loan (DDTL) was also part of the deal — caught our attention this week, as it's the latest example of how private credit and syndicated market can work together in hybrid structures.

The UK-based testing company syndicated €621m TLB at E+425bps and 99.5 OID — revised from E+450/475bps and 99 OID at PT — selling a £250m sterling tranche to a club of direct lenders.

Once a rarity, inviting direct lenders into syndicated processes to form ‘hybrid’ financing solutions has grown more common this year, as public and private creditors are increasingly jostling for the same deals.

“It's a healthy development for both markets,” one direct lender said. “It means sponsors have wider and more efficient access to capital and it de-risks the banks too.”

Check out the list of leveraged loans that priced recently below:

Here is a list of leveraged loan transactions in the market:

Click here to get the weekly loan movers.

There haven't been many European high yield issuances to flag recently, as buyout and M&A financing have mainly concerned the term loan market.

Most supply remains for refinancing purposes, with a “very light” net issuance expected for the near future given a lack of M&A/LBO activity, according to a Barclays' research.

“The challenge for the market is that spreads are tight”, the bank said, pointing out there seems to be limited room for spreads to compress further from here.

Spreads have trended back toward year-to-date lows of around 300bp, but three quarters of the market trades tighter than the index spread due to the influence of a small tail of very distressed names.

Excluding these, non-distressed PE HY spreads are trading at just 245bp which is only 25bp away from the post-GFC tight, Barclays noted. 

The bank expects spreads to stay tight but with macro-related risk principally coming from a reversal of the interest rate cuts priced in by central banks.

If the narrative fully shifts away from interest rate cuts, markets would likely reassess the balance of risks, according to Barclays.

“An obvious risk would be any dampening of growth expectations, especially for the euro area, where the broad consensus is that the trough has passed and growth should now improve,” it added.

European LevFin Wrap — Repricings kick in as LBOs provide consolation

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