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”