July 2014 Volume of Leveraged Loans Syndicated in Europe Highest Since July 2007, says S&P Capital IQ LCD
Bull-market structures such as covenant-lite and second-lien loans appear to be in abundance
London - August 7, 2014 -The volume of leveraged loans syndicated in the European market during July 2014 exceeded that of every month since July 2007, according to data from S&P Capital IQ LCD.
Last month, €14.6 billion of leveraged loans were syndicated in Europe - the highest monthly volume since July 2007's €19.5 billion. This figure adds to June 2014's volume of €13.2 billion to make a very active summer relative to all other post-2007 years.
"Total 2014 European leveraged loan volume was already €60 billion at the end of July, putting the market well on track to surpass the €68 billion syndicated during the whole of 2013," comments Ruth McGavin, Associate Director at S&P Capital IQ LCD. "There appear to be plenty of deals in the pipeline, so if market conditions remain robust the autumn could be busy too."
A large number of leveraged loans launched in July 2014 included features that are commonly associated with bull-market conditions in which the demand for assets exceeds supply.
In particular, S&P Capital IQ LCD tracked a high volume of covenant-lite loan issuance. Covenant-lite loans are generally viewed as being borrower-friendly since they do not offer traditional lender protection in the form of maintenance covenants. This means lenders may be less able to step in and influence how a business is managed if it begins to perform poorly.
The volume of covenant-lite loans syndicated in the European leveraged loan market reached €4.7 billion in July 2014, pushing the year-to-date total to €14.6 billion - nearly 40% of all loans syndicated to institutional investors in the European market so far this year. This compares with €7.7 billion of covenant-lite loans issued in full-year 2013 (21% of institutional loan volume) and €8.1 billion in 2007 (7% of institutional loan volume).
"The recent high issuance of covenant-lite loans means that funds that invest money in the European leveraged loan market are being offered a higher proportion of covenant-lite paper than they have ever seen in the past," says McGavin. "Unless there is a clear change in market conditions, the trend may continue through the autumn."
In addition, the European leveraged loan market has seen a high volume of loans with second-ranking security, known as second-lien loans. In July 2014 alone, €1 billion of second-lien loans were syndicated, bringing the year-to-date total to €1.8 billion. This easily beats the full-year 2013 tally of €120 million, but remains a long way below the €13.2 billion syndicated in 2007.
Companies that borrowed both first-lien and second-lien loans were able to raise a larger amount of debt as a multiple of EBITDA (earnings before interest, taxes, depreciation and amortization), compared to those that raised first-lien debt only. S&P Capital IQ LCD data shows that, in the first seven months of 2014, companies that borrowed both first-lien and second-lien loans raised total debt worth 5.9x EBITD
ABOUT S&P CAPITAL LEVERAGED COMMENTARY AND DATA (LCD)
A business unit of S&P Capital IQ, LCD is the global market leader in leveraged finance news, analysis and data. It offers real-time coverage of the US/European leveraged loan and high-yield bond markets, from deal inception through the secondary markets. In addition, it produces distressed market news, trend analysis, analytical highlights and guest commentary from leading leveraged finance players. LCD's research arm enables reporting on pricing, trends, secondary levels/analysis, credit stats, default analysis, and both US and European Loan Indexes. For more information visit: www.leveragedloan.com.
ABOUT S&P CAPITAL IQ
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