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August is meant to be an uneventful month for the European LevFin primary market. But the global sell-off that drove equities to slump — notably Japan’s Nikkei 225 dropped 12.4% on 5 August — caused some jitters over how credit would react.

Yet, despite the macro indicators — see our analysis on the 9fin platform yesterday — credit investors have taken things in their stride.

“Reactions seem overblown”, a leveraged loan investor said. “Maybe I'll be eating my words, but we've got until September at least for sentiment to shake out before anything was meant to launch.”

Another two leveraged loan investors agreed it was seemingly an equity valuation issue rather than a systemic one, and this wouldn't hit the strong technicals in the loan market.

Indeed, stocks have bounced back with the Nikkei 225 registering a 10.3% gain today (6 August).

The iTraxx Crossover index jumped around 20bps to 350bps yesterday (on top of the 23bps move it made Friday) to land on its widest level since April. It then retraced to 341bps and is at 346bps today, out 5bps from the London market open.

Amid the volatility, a flight to quality ensued, with US Treasuries and German Bunds rallying as a result.

According to 9fin’s bond screener, the biggest movers yesterday were names already in distressed territory, such as TalkTalk (amid reports that Macquarie has backed out of a bid for a stake in the firm’s wholesale business) or Kem One. Other credits 9fin is closely following, such Intrum, haven't posted any big drop.

CDS is often a faster mover than bonds in times of volatility, and some iTraxx Crossover constituents reacted as much or more than the index. Jaguar Land Rover five-year CDS, for example, gapped out 50bps across the Friday and Monday session, to 250bps.

Market participants speaking with 9fin during the rout had matching views on LevFin issuance forecasts, shrugging off concerns over an extended break in the primary market.

“Companies will think twice before going to market in this environment, but who’s issuing in August anyway?” queried a high yield analyst. “September is far away and we’ll see more macro indicators that could justify a soft landing scenario again. In that case a new market window will open up.”

One senior banker said the spike in volatility was “mainly an equity matter”.

They added: “I didn’t see much effect on aggregate bond indexes, we actually had an important rally on ‘safe’ sovereign debt. It’s true that credit spreads widened but I’m not worried on financing, banks are healthy and still willing to lend to good credits.”

As desks were closing the docs for new money deals to land after the summer, the main priority market makers have is to safeguard the LBO pipeline.

Buyout activity has rebounded from last year's rock bottom levels in the first half the year and many more deals are expected to come to market after August. Sellsiders we’ve been speaking to expect roughly €20bn of bonds and loans to land in September.

“My main concern is the LBO pipeline,” said the first high yield analyst, mentioning that Siemens’ €3.5bn spin off of Innomatics or Investindutrial’s financing acquisition of Forno d’Asolo could be delayed “but not for long”.

Concerns also mounted in regards to refinancing transactions, as some companies still need to address their 2025/2026 maturity wall.

“There's some refis that definitely need to come, but maybe this will push back some opportunistic deals, or change the timeline on some new money supply,” a loan investor said.

Several of the bonds that are maturing in 2024 are trading up in advance of a refinancing — on the platform we have a list of companies with bonds to refi in the next two years. See here for a similar list covering loans.

Investors have their eyes on major buyouts that are supposed to be syndicated post-summer such as DB Schenker and Sanofi, with both expected to tap bonds and loans.

“It’s too early to say”, a second senior banker told 9fin referring to a possible delays in acquisitions activity. “Every deal is different, with different docs and timing. But I don’t think what happened can massively overthrown a transaction.”

In the European CLO market, which tends to lag the loan space, there has been a similarly muted reaction.

The fact there haven’t been any refinancings or other UoPs that have been pulled or delayed because of the sell-off is good news in itself, but then again there were not many transactions expected to in August ahead of the volatility .

That’s a narrative that can’t be applied to the US, where new primary issuance has taken a backseat for now, as our colleagues in New York reported.

Wireless infrastructure company SBA Communications pulled an attempt to reprice its $2.3bn TLB due 2031 and theme park operator Sea World postponed a $1.55bn TLB refinancing, according to Bloomberg reports.

In Europe it might just be a case of sticking to the plan. We reported yesterday that Evri (formerly Hermes), one of the UK's largest parcel delivery companies, is readying a roughly €1.5bn-equivalent syndicated package for post-summer.

The deal shouldn’t be delayed and will be split roughly down the middle with euro loans and sterling bonds, sources said.

“We are in Europe and summer is pretty dead here anyway,” a second banker said. “Luckily this volatility occurred in August, when things are a lot quieter.”

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