Marlborough Partners, the independent private equity debt advisory firm, today published its report on the European leveraged finance market in Q1 2016.
The report, analysing data from a number of sources, shows leverage loan and high yield volumes down on the comparable period Q1 2015. This was due to increased market volatility (in February 2016 the iTraxx reached 484bps, its highest level since June 2013) which impacted HY volumes in particular as well as loan volumes. Starting March 2016 issuance picked up again.
In Europe, the total leveraged loan and high yield volume in Q1 was respectively €13.3bn (down from €21.4bn in Q1 2015) and €7.1bn (down from €22.9bn in Q1 2015). The Chinese macro environment, oil prices and Brexit were amongst the themes which impacted activity. The types of deals that priced during the quarter included i) strong credits, ii) must-get-dones i.e. predominantly M&A linked or iii) deals with a short time-to-market which can take advantage of narrow but favourable windows.
The Brexit polls suggest “exit” and “remain” to be neck and neck. Should a Brexit materialise, the impact could be vast (eg. economic slowdown, trade agreements, free movement of labour, currencies). Sectors likely to be mostly impacted are Financials, Property, Travel & Leisure and Retail. The report suggests that a depreciation of the GBP upon a Brexit could significantly impact the profitability of unhedged businesses. Lastly, the report outlines a few watch list items which are directly linked to leverage finance.
Marlborough Managing Director, Taddeo Vender, said: “Borrowers and lenders alike are used to dealing with market volatility. Brexit however is a step too far as the outcome and the full impact is too difficult to quantify. There are too many variables. This is what is driving uncertainty and in turn preventing market participants from bringing businesses to market. Following the Brexit outcome we expect market activity to pick up again”