Discussed this month:
- Acquisition-related loan volume has been prominent in the year to date, driven by a healthy 1Q deal slate.
- Looking at country diversification by volume, France tops the table in 1Q19, with the U.S. second thanks to cross-border activity and Sweden third, boosted by the €1.56 billion Ahlsell deal. The U.K. is only sixth on the volume measure, suggesting Brexit uncertainty may have had some impact on this market.
- Leveraged loans dominate sources of funding, with second-lien also making a strong showing. Bonds are being crowded out by second-lien, with the average size of the latter rising as a portion of debt.
- Single-B supply continues to lead the loan market, with double-B issuance aimed at the high-yield space.
- Loan spreads are creeping higher, with the proportion of deals priced at E+400–499 or E+500 and above recorded in 2019 so far higher than that seen in the last couple of years.
- While asset spreads have widened, the weighted average cost of capital (WACC) for CLOs has risen even faster, putting pressure on the arbitrage. Despite this, the CLO market generated record volume in 1Q19.
- The market is willing to finance higher leverage, with deals now openly marketed above 6x (pro forma debt/EBITDA) despite the ECB guidelines, and a larger slice of transactions coming at 6x-plus leverage in 2019 YTD than in any full year since the crisis.
- High-yield bond volume has disappointed so far this year, though the asset class enjoys strong technicals and remains welcoming for double-Bs, with new-issue yields having fallen for this cohort. The burst of issuance after Easter will have improved the high-yield volume total.
More S&P Global video and audio resources are available here.
Luke Millar is European Editor at LCD. Chris Porter is Head of Loan Recovery & CLO Business Development, S&P Global.
Please feel free to contact Chris if you’d like a particular topic discussed in next month’s video.
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