Q4 2016 Market Update

Marlborough Partners, the independent debt advisory firm, today published its report on the European leveraged finance market for Q4 2016.
The report, analysing data from a number of sources, shows European leveraged loan volumes increased by 11% compared to prior year with the market uncertainty forecast as a fall out from Brexit not coming to pass. After a relatively difficult Q1, market conditions improved for borrowers driven by significant liquidity.
The European High Yield market showed strong decline (17% vs. 2015) due to an increasingly cov-lite leveraged loan market which is not suffering from pre-payment penalties.
In the UK, institutional spreads for senior loans witnessed a significant reduction over the year, tightening by 80 basis points compared with last year to average 380 basis points. Initially spreads increased in Q4-’15 due to macro concerns but especially the US market proved relatively more attractive (from a debt investor perspective)
The report also reflected that 2016 was a strong year for funds who continued to take market share from banks as the unitranche product continues to penetrate the market. Increased competition in the mid-market direct lending space has led funds to differentiate themselves from banks by financing larger quanta, offering cheap pricing with flexible documentation and/ or in niche markets (i.e. small EBITDA, unusual geography)
Marlborough Partner, Romain Cattet, said: ““Over the last 12 months the leveraged loan market has evolved significantly. We are going through the most ‘borrower friendly’ period in the history of leverage financed with even more flexibility, lower yields and higher leverage multiple than those experienced in 2007. The amount of available liquidity is such that some deals are now repricing less than 6 month after completion”.

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