Photographer: Martin Leissl/Bloomberg

Europe’s Loan Market Starts to Recover After Brexit

U.K. vote shock in leveraged loan market short-lived.

The supply of new leveraged loans in Europe has restarted amid a tentative recovery in secondary prices following the shock Brexit vote.

Primary market newsflow picked up from Wednesday last week, as spreads in the credit markets tightened, with banks mandated to back the proposed buyout of the France-based property firm Foncia and Carlyle Group wrapping up its 570 million euro ($635 million) buyout of Portuguese packaging firm Logoplaste.

Immediately after the U.K. referendum result, secondary prices plunged, dropping to levels last seen at the end of March. Prices have since picked up, albeit slightly, as key benchmark metrics show. Standard & Poor's European leveraged loan index increased by 14 basis points since last Tuesday to 96.48, after falling more 90 basis points in the three days previously. JPMorgan’s European leveraged loan index has stabilized, having yielded 6.12 percent to three year on June 29 versus 5.80 percent on June 23. 

These moves follow the U.S. market where loan prices have retraced some of their post-Brexit decline, though some loans with European exposure are said to have underperformed.

Nigel Houghton, the managing director of the LMA, said last Tuesday that a surge in leveraged loan refinancings earlier this month may have come to an end amid the uncertainty following the Brexit vote. According to data compiled by Bloomberg, companies rushed to do deals before the referendum, with 7.1 billion euro of loans allocated in the first three weeks of June, making it the busiest month of the year.

Many of the deals now in or being brought to the market are linked to buyouts, including the Foncia financing and a 1.2 billion euro debt package that backs the acquisition of Bilfinger’s Building and Facility unit. Private equity firm CVC Capital Partners is in the market with an acquisition financing for AR Packaging, and has mandated banks for its buyout of Sisal.

Some large private-equity firms paused on some deals in the run up to the vote but this may not carry on for long, Michael Collins, deputy chief executive of Invest Europe, said in an interview. 

“Ultimately, while the general sentiment is of prudence in the immediate future, firms won’t be able to preserve a ‘hands in pocket’ approach while sitting on uncommitted capital for too long." Navigating through risk and political uncertainty is part of their mandate, Collins added.

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