Issuance in the European leveraged loan market dropped dramatically in April despite continued investor appetite for paper, as those investors retained discipline while chewing over some complicated credit stories. The paucity of activity in the new-issue loan market sparked more interest in the secondary, with pricing in trading market tightening.
Across the whole of the month, the European loan market saw just €2.52 billion of leveraged loan issuance, according to LCD. While that is a higher monthly total than was seen in January 2019 and December 2018 (which recorded €1.75 billion and €1.69 billion of issuance, respectively), April was still one of the quietest non-holiday months in recent years for loan supply.
The fall in activity was mostly driven by the downturn in M&A.
After a bustling first quarter of 2019 that saw jumbo buyout transactions from Ahlsell, Amer Sports, and Johnson Controls’ Power Solutions, April brought only two LBO financings to the loan market.
French insurance firm April SA completed a €550 million institutional term loan backing its acquisition by CVC while DORC (Dutch Ophthalmic Research Center) allocated a covenanted €155 million institutional term loan supporting Eurazeo’s takeover of the firm from Montagu Private Equity. (The DORC deal is a somewhat rare bird, as most leveraged loans these days continue to be covenant-lite, meaning they offer lenders and investors less protection if there's a downturn in the credit).
Instead, April saw an uptick in European leveraged borrowers turning to the high-yield bond market. CVC opted for bond financing to fund its take-private of Spain’s Telepizza, completing a €335 million offering of secured notes for the pizza chain, while April saw more than €9 billion of high-yield issuance.
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