In the latest Capital Markets View video, LCD's Taron Wade and S&P Global's Chris Porter cover the main trends in the European leveraged finance market.

Discussed this month:

• Some of the M&A pipeline is taking time to make its way through the market. This has left room for more opportunistic deals, with European repricing volume up in October from the late-summer lows, and following a patchy year on this measure.
• Strong technical demand for the loan asset class is driving the pricing dynamic, as spreads and yields continue to tighten in Europe. The average YTM for B rated loans is hovering around the 4% mark, though many deals have come much tighter.
• Reflecting this bifurcated market, a third of deals to flex in October moved pricing wider, in contrast to August and September, when all flexes were tighter. Investors are being more selective on deals, with credit firmly in the spotlight.
• Looking at average (R3M) single-B spreads, these show a stark divergence between the U.S. and European markets, with U.S. spreads up at roughly 440 bps (above the base-rate floor), and the European measure around 390 bps. This differential reflects weaker demand and a flight to quality in the U.S., where the market has seen retail fund outflows amid increasing concern about corporate stress.
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• Secondary pricing is falling in both regions, reflecting this investor nervousness and some heat coming out the market. In October, very few constituents of the European Leveraged Loan Index (ELLI) were trading at 101 or higher, following a strong showing from this cohort in the prior month.
• CLO volume has been very strong this year, and in October net loan supply exceeded CLO issuance on LCD’s measure.

More S&P Global video and audio resources are available here.

Taron Wade heads up LCD’s European Research efforts. 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.

LCD is an offering of S&P Global Market Intelligence. S&P Global Ratings is a separately managed division of S&P Global.

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LCD comps is an offering of S&P Global Market Intelligence. LCD’s subscription site offers complete news, analysis and data covering the global leveraged loan and high yield bond markets. You can learn more about LCD here.