Q2 2015 Market Update

Marlborough Partners, the independent private equity debt advisory firm, today published its report on the European leveraged finance market in Q2 2015.

The report, analysing data from a number of sources, shows leverage loan and high yield volumes down on Q1 2015. This was due to decreased M&A activity in the quarter and as such sponsors focused on taking advantage of a favourable refinancing and repricing environment.

In Europe, the total leveraged loan volume in Q2 was €15.9bn down from €20.4bn in Q1 2015. Of the €4.5bn decline, the vast majority (€4.2bn) was attributable to the reduction in M&A related loan activity.

Repricing activity was at an all time high during Q2 with €7.8bn of loans repriced during the quarter. Q2 volumes were nearly double the level repriced in Q1 and represent a firm indication that repricings are a feature of the European leveraged loan market that is here to stay. According to Marlborough analysis the level at which margin repricings (c.75bps in 2013 versus c. 60bps in 2015) are being implemented has tightened over time in part due to OID incentives coming down (30bps in 2013 versus less than 10bps in 2015).

iTraxx fluctuated between 242bps and 338bps in the quarter and settled at 329bps, 67bps higher than the level reached at the end of Q1 2015. High yield volumes of €18.7bn in Q2 2015 were down on Q1 15 levels in part due to uncertainty generated by the situation in Greece which had a particular impact in May and June.

Marlborough Managing Partner, David Parker, said: “The European leveraged loan market is becoming increasingly aligned with its larger more liquid counterpart in the US. Excess investor demand at a time of a relative lack of M&A driven new issuance has meant that refinancings and repricings continue to keep the market active. The ongoing repricing opportunity predominantly remains a large / capital market tool as mid market issuers do not currently benefit from access to the same investor liquidity pool or have the same refinancing threat”

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