December 2012, European Leveraged Loan Market Analysis


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In November, European leverage loan issuance was up, high yield was down, while secondary markets for both loans and bonds went up

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December 2012, European Leveraged Loan Market Analysis

  1. 1. TextEuropean Leveraged Finance Market Update December, 2012 Sucheet Gupte - Director
  2. 2. European Market TrendsText • Loan issuance shot up to €4.3 billion from €3.7 billion; HY issuance came down to €3.4 billion from €3.5 billion • Estimated inflows into HY funds were €536 million for November, YTD through the end of November up to almost €6 billion • Secondary markets are up: Loan markets went up 48 bps to finish the month at 96.83 High-yield markets are up 84 bps to finish the month at 100.81 • The S&P European Leveraged Loan Index (ELLI) finished the month up at 0.66% (till the week ending November 29th) • Default rates stabilized during the month.
  3. 3. European Loan Flow Name Prices 100 99 Text 97 96 94 93 91 1/11 3/11 5/11 7/11 9/11 11/17 1/12 3/22 5/12 7/12 9/12 11/12. Source: LCD - Leveraged Commentary & Data
  4. 4. European HY Bond Flow Name Prices 106 102 Text 98 94 89 85 81 1/11 3/11 5/11 7/11 9/11 11/11 1/12 3/12 5/12 7/12 9/12 11/12. Source: Bloomberg
  5. 5. ELLI Multi-Currency Loan Return 2.5% November 2012: + 0.66% October 2012: + 0.47% Text Jan-Nov 2012: + 8.7% Jan-Nov 2011: + 0.71% 1.6% 0.7% (0.2%) (1.1%) (2.0%) 9/11 11/11 1/12 3/12 5/12 7/12 9/12 11/12. Source: S&P European Leveraged Loan Index
  6. 6. Volume: New-issue Loans vs. HY Bonds 10 HY bonds Text Loans 8€billions €3.4B 5 3 €4.3B 0 9/11 11/11 1/12 3/12 5/12 7/12 9/12 11/12 . Source: LCD - Leveraged Commentary & Data
  7. 7. Historical Maturity Schedule by Par Outstanding 50.0 Text 37.5 25.0 12.5 0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 YE 2009 YE 2010 YE 2011 Oct 2012. Source: LCD - Leveraged Commentary & Data
  8. 8. Reasons for Reductions in Outstanding Loans Text Reductions from Outstanding Loans (€B) Share of Share of 2011 Jan-Sep 12 Outstandings Outstandings HY Takeouts 5.9 4% 2.9 3% Other Full Paydowns 26.9 20% 7.7 7% Other Partial Prepayments 6.0 5% 1.7 2% A-to-E 6.4 5% 10.9 10% Defaults/Restructurings 1.1 1% 5.2 5% 46.3 35% 28.5 25% Source: S&P European Leveraged Loan Index (ELLI). Source: S&P European Leveraged Loan Index (ELLI)
  9. 9. ELLI Default Rates – European Leveraged Loans Default Rate by Principal Amount Default Rate by Issuer Count 16% 16% 13% 13% 10% 10% 6% Text 6% 3% 3% 0% 0% 2/09 3/10 4/11 11/12 2/09 2/10 2/11 11/12. Source: LCD - Leveraged Commentary & Data
  10. 10. Themes to watch forText• No significant changes to the quantative easing policies from the ECB• Flurry of activity before year-end; otherwise deals getting pushed into the new year• Bond-for-loan takeouts will continue to keep pace• Peripheral issuers continue to access the high yield markets• Issuers will seek ‘add-on’ facilities instead of whole new facilities for their needs• European issuers increasingly go across the ‘pond’ to the US, to issue loans and bonds• Sell-side bankers and sponsors optimistic about M&A activity during 1Q of 2013• Loss of CLOs: almost 85% of CLOs will be past reinvestment periods by end of 2013
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