Leveraged-Loan Prices Soar to Highest Since 2008 in Europe

Leveraged-loan prices climbed to the highest in more than five years in Europe as record low benchmark rate spurs demand for high-yield corporate debt.

The average price of the debt rose 4.6 percent this year to 94.15 cents on the euro, the highest since Jan. 10, 2008, when prices reached 94.43 cents, according to Standard & Poor’s European Leveraged Loan Index.

The European central bank is holding down borrowing costs even as the region emerges from recession. That’s luring U.S. investors who can get higher margins than in their home market.

“U.S. investors, who now feel more confident about the European economy, are adding to the already strong demand for European leveraged loans from Europe itself,” said Torben Ronberg, head of loans at ECM Asset Management Ltd. in London, which manages $8.4 billion. “A global fund manager ideally should have about 20 percent allocation to Europe instead of the 5 percent most in the U.S. have before they began to run out of opportunities there.”

Average interest margins on first-lien euro-denominated leveraged loans are higher than in the U.S. at 431 basis points more than benchmark lending rates compared with 418 basis points for the loans in dollars, according to data compiled by Bloomberg.

The 190 million-euro term loan B backing CVC Capital Partners Ltd.’s buyout of some of Campbell Soup Co. (CPB)’s European assets was quoted at 101.3 cents on the euro today, compared with 101.2 cents when it started trading last week, according to Markit Group Ltd.

Dell, Chesapeake

The 700 million-euro term loan funding the acquisition of Dell Inc. (DELL) by Chief Executive Officer Michael Dell and Silver Lake Management LLC rose to 100 cents from break trade level of 99.75 cents, while the term loan in dollars fell to 98.8 cents on the dollar from 99 cents, Markit prices show.

The 145 million-pound term loan B for Carlyle Group LP’s buyout of U.K. packaging firm Chesapeake Ltd. was quoted at 100.2 pence on the pound, compared with 100 pence when it began trading in September, according to Markit prices.

Private-equity firms such as KKR & Co. and Providence Equity Partners are capitalizing on the demand to increase debt financing for dividend payouts to 7.3 billion euros ($9.9 billion) this year, almost triple the amount for the same period of 2012, according to Fitch Ratings.

To contact the reporters on this story: Patricia Kuo in London at pkuo2@bloomberg.net; Julie Miecamp in London at jmiecamp@bloomberg.net

To contact the editor responsible for this story: Shelley Smith at ssmith118@bloomberg.net

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