An increasingly supportive backdrop and steadily tightening pricing in the European leveraged loan market has encouraged a flurry of issuers to return to investors with opportunistic transactions to cut the cost of existing facilities, with more such repricings likely to be on the way before the end of summer.
The volume of leveraged loan debt being repriced in Europe rose to €27.03 billion in the first six months of 2021, compared to €15.59 billion and €16.34 billion notched up in the full years of 2018 and 2019, respectively.
Meanwhile, the average saving on the spread and floor made by European loan borrowers when repricing deals in the second quarter of this year stands at 91.67 basis points, which is the highest average saving recorded since the third quarter of 2017.
This repricing wave reflects how far terms have tightened after widening in the latter three quarters of 2020. In the 90 days to June 24, 2021, the average yield on euro-denominated single-B leveraged loans was 3.99%, from 4.39% in Q4'20 and 4.74% in Q3'20, while the average spread on these deals tightened to E+378.7 in the three months to June 24, from E+379.9 in Q1'21 and E+408.9 in Q4'20.
The volume and depth of the current repricings available not only illustrate how far the European loan market has recovered since reopening after the initial shock of the COVID-19 pandemic in early 2020, but may also be partly caused by this improvement. Indeed, many of the repricings brought to investors over the past six months have been from issuers looking to improve terms on facilities that priced in the aftermath of the leveraged loan market closure in Q2'20, or as a borrower's particular sector was recovering through the summer and autumn of last year.
For example, TK Elevator Holdco GmbH in June 2020 completed a bond and loan financing package to back its $16.4 billion buyout by Advent International, Cinven and RAG in what was then regarded as one of the largest tests for the leveraged finance markets since the pandemic hit. The dollar- and euro-denominated loans of €1.015 billion and $2.861 billion have just emerged from their 12-month soft call protection periods, and the issuer has immediately returned to investors to try and shave up to 50 bps from the margin, with the B+/B1/B+ rated euro facility guided to be repriced to E+375 with a 0% floor, from E+425 currently.
Elsewhere in June, B-/B2 rated nursing home operator Colisée Patrimoine Group SAS repriced its existing €875 million term loan B to E+375 with a 0% floor, from E+400 (the original deal completed in October 2020 with a six-month call protection period). Similarly, healthcare services firm Dedalus Italia SpA (B/B2/B+) shaved the margin on its €920 million term loan to E+375 with a 0% floor, from E+450.
Furthermore, when looking at the European secondary loan market it seems there are still plenty more opportunities for issuers to reprice.
While some 79% of single-B rated deals in the aftermarket are trading below par, almost a fifth are above par and potential candidates for a repricing. Roughly 5% of all single-B rated outstanding deals are priced at E+450 or higher and are trading above par, while another 5% are above par and have margins at E+425 or higher.
Recent indications that pricing may be edging ever tighter in the primary markets may also prompt more issuers to consider returning to market to cut costs. A €553.2 million term loan B from BB-/B1/BB rated Nomad Foods Ltd. — which completed in mid-June at E+250 with a 0% floor offered at 99.75, to yield 2.57% — may have set a benchmark for similarly rated issuance, sources note. “That pricing will push some issuers to sit up and take notice,” said one senior banker. “There are more refinancings and repricings to come through too — especially with borrowers having seen Nomad get done at that level.”