Archive for May, 2015

Q1 2015 Market Update

Marlborough Partners, the independent private equity debt advisory firm, today published its report on the European leveraged finance market in Q1 2015.

The report, analysing data from a number of sources, shows leverage loan and high yield issuance up strongly on Q4 2014 and the comparable period in Q1 last year. This was partly due to increased M&A activity and to a small number of significant issuances such as Merlin (€1.3bn) and Trader Media (€0.8bn). It also reflects a number of deals that signed in Q4 2014 but closed in Q1 2015.

In Europe, the total leveraged loan volume in Q1 was €20.4bn (of which, €13.0bn was M&A related) , up from €13.2bn in Q4 2014. This represents the strongest first quarter since 2007. In the UK the total was €6.8bn, a 68% increase on Q4 2014 and 4.3x the level experienced in the same period in 2014.

Q1 2015 had lower volumes in terms of opportunistic deals such as dividend recaps and repricings. Sponsored dividend recap volumes across Europe fell from €2.7bn in Q4 2014 to €0.7bn, representing 31% of total sponsored loan volume in Q4 2014, but only 5% in the last quarter. Repricings amounted to €1.4bn last quarter, a 4% decline against Q4 2014, however, compared to the same period last year, volumes are down by 59%.

Cov-lite volumes amounted to €5.1bn in Q1 2015, representing 40% of total institutional loan volume, up from 33% in Q4 2014 and 29% in the same period last year. The bulk of Q1 cov-lite issuance (€4.0bn (or 80%) of) was related to cross-border financings.

iTraxx fluctuated between 249bps and 366bps in the quarter and settled at 262bps, 83bps lower than the level reached at the end of Q4 2014. High yield volumes of €27.1bn in Q1 2015 represent the largest Q1 volume on record, driven in part by the ECB’s announcement of quantitative easing.

Marlborough Managing Partner, Jonathan Guise, said: “It is hard to remember a time when the market has been so attractive to mid-market borrowers. Excess liquidity has resulted in intense competition between bank and non-bank lenders, resulting in tight pricing, more flexible structures and looser covenants. The larger, underwritten loan market, however, has been less consistent with bigger, more liquid names being more favorably received by investors, particularly those issuing in Euros. The smaller end of the underwritten loan market (sub €300m of debt) proved to be particularly tricky with 6 out of 7 Q1 deals being flexed up.”

Q4 2014 Market Update

Marlborough Partners, the independent private equity debt advisory firm, today published its report on the European leveraged finance market in Q4 2014.

The report, analysing data from a number of sources, shows strong growth in the European leveraged debt markets across the board in both the loan and bond markets during 2014. The large market saw bond issuance increase from €70bn to €72bn whilst loan market issuance increased from €68bn to €78bn which combined translates to an increase of 9%.

The substantial growth in the loan market was assisted through an increase in market liquidity driven by the issuance of €14bn+ of CLO volume which was up 100% on the prior year as well as the drive towards cov-lite and cov-loose structures. Marlborough estimates that cov-lite structures now account for c. 20%+ of all large market loan issuance and cov-loose accounts for 50%+ of all mid market loan issuance.

The UK mid- market also saw strong growth with deal volumes increasing by 14% on prior year driven by a further wave of refinancings and recapitalisations. There was also significant market share gains made in the unitranche market at the expense of the bank market which whilst not eclipsing the 250% increase from 2012 to 2013 still managed growth of nearly 100%

The year was one very much of two halves with Q2 being particularly strong and the market softening in Q3 and Q4 for a combination of reasons including the Fed tightening, issues in the Ukraine and Middle East and equity volatility being amongst many other factors. This volatility is exemplified through the increase in Term Loan B leveraged loan spreads during Q4 which averaged 460bps compared to a Q1 position of 375bps and an average for the year of 416bps. By the same token single B bond yields moved out to 6.78% during Q4 compared to an average for the year of 6.5%.

Across Europe, average total leverage multiples reached 5.1x (as against 4.7x in the whole of 2013) reaching levels last seen in 2008. Average equity contributions continued their downward trend reaching 41% in Q4 2014, the lowest level since 2007.

Marlborough Managing Partner, David Parker, said: “Notwithstanding the volatility experienced at the end of the year, 2014 was another post credit crunch record with all leveraged debt markets firing across the board. Given the continued push in cov-lite loan issuance we expect 2015 will be another strong year driven in part by borrowers seeking to extract favourable terms”

Q3 2014 Market Update

Marlborough Partners, the independent private equity debt advisory firm, today published its report on the European leveraged finance market in Q3 2014.

 The report, analysing data from a number of sources, shows leverage levels and high yield issuance down on Q2. This was partly due to the traditionally quiet month of August and scarcity of large deals which underpinned the large volumes experienced in Q2 (Saga and Virgin Media). It was also due to uncertainty in the capital markets and reducing liquidity, which saw a number of transactions either postponed or flexed to clear.

In Europe, the total leveraged loan volume in Q3 was €19.8bn (of which, €15.1bn were for private equity-backed companies) , as opposed to €30.2bn in Q2; in the UK the total was down to €2bn from €8.3bn in Q2. Average LBO leverage multiples across Europe plateaued at 5.0x.

Dividend recapitalisations in Europe reached a post-2007 high of €2.9bn. To September 30th this year, GPs have taken €2.3bn of equity from their portfolio companies, equating to the whole of 2013’s figure. To the end of Q3, 57% of private equity loans were used for acquisition, 18.2% for recapitalisations and 24.5% for refinancings (with a tiny percentage for ‘others’).

Uncertainty in the capital markets drove increased risk aversion in the market, resulting in the iTraxx fluctuating between 224bps and 300 bps over the quarter, settling at 257bps, 22 bps higher than at the end of Q2.

Marlborough Partner, Romain Cattet, said: “One aspect of our work during this very busy year has been advising GPs on the debt structures for IPO candidates. Apart from the last few weeks, European equity markets have welcomed a large number of private equity IPOs, providing a credible exit option for GPs. However, public markets have a relative aversion to high levels of debt, requiring sponsors to reduce the leverage in IPO candidates, typically to 2.0x-3.0x. At these levels, the restrictions associated with LBO facilities are not appropriate and we recommend replacing them with cheaper and more flexible corporate loans.

We have listed the main terms and conditions of such facilities in order to illustrate the main differences, as shown in the attached slide. While the IPO markets are currently in a waiting mode, we expect new listings to resume at the start of 2015 – perhaps to the frustration of buy-side advisers in dual track processes!”