Leveraged Finance Chart Book...loan-to-bond refinancings including Kiloutou and Berry Global....

Leveraged Finance Chart Book

Europe 4Q/2019

3 Summary

4 High Yield Heroics

5 Missing M&A

6 Room for Opportunists

7 Divergent Trends

8 CLO Expansion

9 All Charts

25 Contact Details

Contents

4Q19 Summary Bond Boost Lifts Primary Leveraged Finance Volume

New-issuance in Europe's leveraged finance market climbed to EU147b in 2019, a 6% increase on the previous year although still behind the post-crisis record set in 2017.

The high-yield market took the lion's share, with bonds outstripping loan issuance especially in the fourth quarter. By end-2019, bond sales amounted to EU79.8b, just over half of 2019's total debt raising, versus EU67.4b of loans sold to institutional investors.

The slower pace on the loan side was mainly due to fewer M&A transactions coming to market. Private equity sponsors pursued some large deals and made numerous bolt-on acquisitions, but dealflow still lagged 2018, held back by high valuations. M&A loan volume of EU37.1b was down 34% year on year.

Demand for high-yield was boosted by the ECB's renewal of its bond-buying program, and new-issue spreads fell, encouraging some borrowers to refinance loans with bonds in the late months of the year.

Loan spreads meanwhile did tighten through the second half of the year, and cautious investors saw to it that some single-B borrowers paid spreads of just 300-325bps and others well over 500bps.

Tighter pricing and a lack of M&A activity during the fourth quarter opened the way for borrowers to reprice and raise dividends in the loan market.

High Yield HeroicsBond sales reach EU79.8b at end-2019, loan volume lags at EU67.4b

A surge in activity during the fourth quarter saw Europe’s high-yield bond market surpass leveraged loan issuance for the full year.Bond financing was boosted by the ECB’s renewal of its bond-buying program, leading to tight spreads, while loan issuance wasslower especially given the lack of new LBOs in the latter part of the year.

EUR/GBP 1L/2L institutional loans (excludes repricings) and European HY corporate bonds.

Fourth-quarter 2019 bond volume far outstripped loans at EU28.5b versus EU10.6b, with bond issuance bolstered by loan-to-bond refinancings including Kiloutou and Berry Global.

EUR/GBP 1L/2L institutional loans (excludes repricings) and European HY corporate bonds.

European high-yield volume amounted to EU79.8b in 2019, up 28% on 2018. Institutional loan volume trailed 2019 by 12% at EU67.4b, the lowest since 2016.

4

0

20

40

60

80

100

120

140

160

180

2015 2016 2017 2018 2019

Euro

Bill

ion

s

Total LevFin Issuance

Q1 Q2 Q3 Q4

0

5

10

15

20

25

30

35

Euro

Bill

ion

s


LevLoans HY

Missing M&ATrailing acquisition financing depresses Europe’s primary loan activity

The year’s larger M&A deals included public to private buyouts and corporate divestments, but there were no super-sized buyouts as there were in 2018 and high valuation expectations among vendors continued to create hurdles for dealmaking. As a result, M&A financing was lower this year, weighing on overall volume.

M&A loan volume stood at EU37.1b at end-2019 in a 34% decline from the previous year after a particularly weak fourth quarter. Prospects for 1Q20 are much more promising however.

EUR/GBP 1L/2L institutional loans.

Private equity sponsors found targets in the public equity markets and bought assets from divesting conglomerates, but sponsor-to-sponsor M&A buyouts were scarce.

5


0

2

4

6

8

10

12

14

Euro

Bill

ion

s

Buyout Volume

Primary LBO Secondary LBO

0

5

10

15

20

25

30

Euro

Bill

ion

s

Use of Proceeds

M&A Other Purposes

Room for OpportunistsStrong demand for loans keeps the door open for refinancing, dividends

New CLO managers arriving in Europe and continued demand from existing managers, plus appetite from non-CLO funds, keptappetite for loans high throughout the year. That allowed existing borrowers to bolt on new money for dividends, and to reprice existingloans. Late in the year repricings picked up and more are expected in the 2020 unless heavy M&A issuance keeps the trend at bay.

4Q19 was the busiest quarter for repricings in two years, at EU7.7b. Borrowers also continued to refinance, helping to keep the maturity wall in Europe at a comfortable distance.


Seven borrowers tapped the loan market for debt-funded distributions to shareholders in the fourth quarter, making a total of 20 for the year, ahead of 2018.

6


-

10

20

30

40

50

60

Euro

Bill

ion

s

Use of Proceeds

New Money Refinancing Repricing

0

2

4

6

8

10

12

14

Dividend count

Count

Divergent TrendsWary investors cause pricing range to widen between easier and tougher credits

Lenders remained eager to book new loans but became increasingly cautious on cyclical or overlevered credits during the year,leading to a widening gap between the spreads on popular and difficult deals. From E+300 to well over E+500, the range reflectslenders getting better at pricing risk, and is a warning to arrangers to take care how they underwrite in the coming year.

Average single B EUR spreads shifted wider to 410bps in 4Q19, having been down at 402bps in 3Q19. But overall, spreads were tighter in the second half of the year and this allowed borrowers to reprice.

EUR 1L institutional loans. Double B issuers.

Spreads for double B issuers crunched down through the second half of the year. These issuers are scarce in Europe’s LBO-centric market and may become more so if 4Q19’s loan-to-bond refinancing trend continues.

7

EUR 1L institutional loans. Single B and unrated issuers.

300

350

400

450

500

550

Dec2016

Mar2017

Jun2017

Sep2017

Dec2017

Mar2018

Jun2018

Sep2018

Dec2018

Mar2019

Jun2019

Sep2019

Dec2019

Bas

is P

oin

ts

Single B All-in Spreads

3m AIS average

200

250

300

350

400

450

500

Dec2016

Mar2017

Jun2017

Sep2017

Dec2017

Mar2018

Jun2018

Sep2018

Dec2018

Mar2019

Jun2019

Sep2019

Dec2019

Bas

is P

oin

ts

Double B All-in Spreads

3m AIS average

CLO ExpansionNew managers helped drive the European CLO market to another record

At nearly EU30b, CLO issuance for 2019 in Europe was the highest since the crisis, building on the growth of the past four years. Eightnewcomers swelled the ranks of managers while existing managers worked to build their AUM. Despite the headline number, it was atough year for the arbitrage and loan supply fell short of managers’ hopes.

2019’s new-issue CLO activity amounted to EU29.8b from 72 deals by 50 managers, showing an increase over 2018. Analysts’ forecasts for 2020 are mostly for a thinner year.

Based on coupon.

CLO triple-A spreads edged wider in the final months of the year after tracking tighter over the summer, ending the year just inside the 100bps mark.

8

0

5

10

15

20

25

30

35

2015 2016 2017 2018 2019

Euro

Bill

ion

s

European CLO Issuance

Volume

0

50

100

150

200

250

Dec2016

Mar2017

Jun2017

Sep2017

Dec2017

Mar2018

Jun2018

Sep2018

Dec2018

Mar2019

Jun2019

Sep2019

Dec2019

Bas

is P

oin

ts

European CLO Avg. AAA Coupon

Avg. AAA, Based on Coupon Wtd. Avg. Cost of Capital, Based on Coupon

All Charts

EUR/GBP 1L/2L institutional loans. Excludes repricings. Historical volumes revised to account for funged add-on tranches.

EUR/GBP 1L/2L institutional loans. Excludes repricings.

HY corporate bonds. HY corporate bonds.

0

20

40

60

80

100

120

0

5

10

15

20

25

30

Euro

Bill

ion

s

New Issue Loan Volume

Volume Count

0

10

20

30

40

50

60

70

80

90

2015 2016 2017 2018 2019

Euro

Bill

ion

s

New Issue Loan Volume

Q1 Q2 Q3 Q4

10

0

20

40

60

80

100

120

2015 2016 2017 2018 2019

Euro

Bill

ion

s

HY Volume

Q1 Q2 Q3 Q4

-

10

20

30

40

50

60

70

0

5

10

15

20

25

30

35

Euro

Bill

ion

s

HY Volume

Volume Count

EUR/GBP 1L/2L institutional loans. Excludes repricings. EUR/GBP 1L/2L institutional loans. Excludes repricings.


-

10

20

30

40

50

60

2015 2016 2017 2018 2019

Euro

Bill

ion

s

M&A Issuance

Q1 Q2 Q3 Q4

0%

20%

40%

60%

80%

100%

M&A Share of Issuance

MA Other

051015202530354045

0

5

10

15

20

Euro

Bill

ion

s

M&A Issuance

Volume Count

11

0%

20%

40%

60%

80%

100%

2015 2016 2017 2018 2019

M&A Share of Issuance

MA Other



0

5

10

15

20

Euro

Bill

ion

s

Sponsored M&A Issuance

Sponsored Non-Sponsored

12

0

10

20

30

40

50

60

2015 2016 2017 2018 2019

Euro

Bill

ion

s

Sponsored M&A Issuance

Sponsored Non-Sponsored

0

5

10

15

20

25

2015 2016 2017 2018 2019

Euro

Bill

ion

s

Primary Buyout Volume

Q1 Q2 Q3 Q4

0

5

10

15

20

Euro

Bill

ion

s

M&A Issuance

LBO PE backed Corp



13

0

5

10

15

20

25

30

Euro

Bill

ion

s

Issuance by Currency

EUR GBP

0

10

20

30

40

50

60

70

80

90

2015 2016 2017 2018 2019

Euro

Bill

ion

s

Issuance by Currency

EUR GBP

0

5

10

15

20

25

30

Euro

Bill

ion

s

Issuance by Rating

B BB CCC No Public Rating

0

10

20

30

40

50

60

70

80

90

2015 2016 2017 2018 2019

Euro

Bill

ion

s

Issuance by Rating

B BB CCC No Public Rating

EUR/GBP 1L/2L institutional loans. EUR/GBP 1L/2L institutional loans.

EUR/GBP 1L/2L institutional loans. EUR/GBP 1L/2L institutional loans.

14

0

5

10

15

20

2015 2016 2017 2018 2019

Euro

Bill

ion

s

Dividend Recapitalization Volume

Volume

0

20

40

60

80

100

120

140

160

2015 2016 2017 2018 2019

Euro

Bill

ion

s

Use of Proceeds


0

10

20

30

40

50

60

Euro

Bill

ion

s

Use of Proceeds


0

2

4

6

8

10

12

14

16

0

1

2

3

4

5

6

7

Euro

Bill

ion

s

Dividend Recapitalization Volume

Volume Count

EUR/GBP 2L institutional loans. Excludes repricings. EUR/GBP 2L institutional loans. Excludes repricings.

EUR/GBP 1L institutional loans. Excludes repricings. EUR/GBP institutional loans. Excludes repricings.

0

2

4

6

8

10

12

0.0

0.5

1.0

1.5

2.0

Euro

Bill

ion

s

Second-Lien Volume

Volume Count

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

2015 2016 2017 2018 2019

Euro

Bill

ion

s

Second-Lien Volume

Q1 Q2 Q3 Q4

3.9

4.4

4.9

5.4

5.9

6.4

6.9

7.4

Total Leverage

Leverage Multiple

3.8

4.0

4.2

4.4

4.6

4.8

5.0

Senior Secured Leverage

Leverage Multiple

15


EUR 1L institutional loans. Excludes repricings. Average Time in Market calculated as time elapsed between Launch and Pricing.

EUR 1L institutional loans.

3.9

4.4

4.9

5.4

5.9

6.4

6.9

2015 2016 2017 2018 2019

Average Tenor

Tenor (Years)

0

5

10

15

20

25

30

35

40

Average Time in Market

Avg Time in Market (Days)

16

0%

20%

40%

60%

80%

100%

Covenant-Lite Issuance

Covenanted Covenant Lite

0%

20%

40%

60%

80%

100%

2015 2016 2017 2018 2019

Covenant-Lite Issuance

Covenanted Covenant Lite

EUR/GBP & USD 1L/2L institutional loans. Excludes repricings. EUR & USD 1L/2L institutional loans. Excludes repricings.

EUR/GBP 1L/2L institutional loans. Excludes repricings. USD-denominated 1L/2L institutional loans. Excludes repricings.

0

5

10

15

20

Euro

Bill

ion

s

Cross-Border Issuance

EMEA US

200250300350400450500550600650

Bas

is P

oin

ts

Cross-Border Pricing

EUR USD

0.00.51.01.52.02.53.03.54.04.5

Euro

Bill

ion

s

U.S. Borrowers in Europe

Volume

0

2

4

6

8

10

12

14

16

Euro

Bill

ion

s

European Borrowers in U.S.

Volume

17

EUR/GBP & USD 1L/2L institutional loans. Excludes repricings. EUR/GBP & USD 1L/2L institutional loans. Excludes repricings.

EUR/GBP & USD 1L/2L institutional loans. Excludes repricings. EUR/GBP & USD 1L/2L institutional loans. Excludes repricings.

020406080

100120140160180

Euro

Bill

ion

s

Global Institutional Issuance

EMEA US

0 10 20 30 40 50 60 70 80 90

Euro

Bill

ion

s

Global M&A Issuance

EMEA US

18

0

50

100

150

200

250

300

2015 2016 2017 2018 2019

Euro

Bill

ion

s

Global M&A Issuance

EMEA US

0

100

200

300

400

500

2015 2016 2017 2018 2019

Euro

Bill

ion

s

Global Institutional Issuance

EMEA US

EUR/GBP 1L/2L institutional loans(excludes repricings) and European HY corporate bonds.

EUR/GBP 1L/2L institutional loans(excludes repricings) and European HY corporate bonds.

FRN corporate bonds. FRN corporate bonds.

19

0

1

2

3

4

5

6

Euro

Bill

ion

s

FRN Volume

Volume

0

20

40

60

80

100

120

140

160

180

2015 2016 2017 2018 2019

Euro

Bill

ion

s


LevLoans HY

0

2

4

6

8

10

12

14

16

2016 2017 2018 2019

Euro

Bill

ion

s

FRN Volume

Volume

0

10

20

30

40

50

60

Euro

Bill

ion

s


LevLoans HY

EUR 1L institutional loans. EUR 1L institutional loans.

EUR 1L institutional loans. Single B and unrated issuers. EUR 1L institutional loans. Single B and unrated issuers.

0

100

200

300

400

500

600

700

Dec2016

Mar2017

Jun2017

Sep2017

Dec2017

Mar2018

Jun2018

Sep2018

Dec2018

Mar2019

Jun2019

Sep2019

Dec2019

Bas

is P

oin

ts

All-in Spreads

3m Margin average 3m Floor average 3m OID average

300

350

400

450

500

550

Dec2016

Mar2017

Jun2017

Sep2017

Dec2017

Mar2018

Jun2018

Sep2018

Dec2018

Mar2019

Jun2019

Sep2019

Dec2019

Bas

is P

oin

ts


3m AIS average

0

100

200

300

400

500

600

700

Dec2016

Mar2017

Jun2017

Sep2017

Dec2017

Mar2018

Jun2018

Sep2018

Dec2018

Mar2019

Jun2019

Sep2019

Dec2019

Bas

is P

oin

ts



20

300

350

400

450

500

550

Dec2016

Mar2017

Jun2017

Sep2017

Dec2017

Mar2018

Jun2018

Sep2018

Dec2018

Mar2019

Jun2019

Sep2019

Dec2019

Bas

is P

oin

ts

All-in Spreads

3m AIS average

EUR 1L institutional loans. Double B issuers. EUR 1L institutional loans. Double B issuers.

EUR 1L institutional loans. EUR 1L institutional loans. Single B and unrated issuers.

0

100

200

300

400

500

600

700

Dec2016

Mar2017

Jun2017

Sep2017

Dec2017

Mar2018

Jun2018

Sep2018

Dec2018

Mar2019

Jun2019

Sep2019

Dec2019

Bas

is P

oin

ts



21

200

250

300

350

400

450

500

Dec2016

Mar2017

Jun2017

Sep2017

Dec2017

Mar2018

Jun2018

Sep2018

Dec2018

Mar2019

Jun2019

Sep2019

Dec2019

Bas

is P

oin

ts


3m AIS average

0%

20%

40%

60%

80%

100%

Distribution of Single B All-in Spreads

<350 351-400 401-450 451-500 >501

0%

20%

40%

60%

80%

100%

Distribution of All-in Spreads

<350 351-400 401-450 451-500 >501

EUR 1L institutional loans. EUR 1L institutional loans.

EUR/GBP/USD 1L institutional loans. EUR/GBP 1L/2L institutional loans.

97

97.5

98

98.5

99

99.5

100

100.5

Per

cen

t

Issue Price

Average New Issue Price

300

350

400

450

500

550

600

650

Bas

is P

oin

ts

All-in Spread by Currency

EUR USD

22

93

94

95

96

97

98

99

100

101

12/1/2017 6/9/2018 12/16/2018 6/24/2019 12/31/2019

Distribution of Issue Price

-20

-10

0

10

20

30

40

50

Facilities Flexed Wider/Tighter

Flexed Tighter Flexed Wider

Includes deals that had no single B tranche; the average is higher if these deals are excluded (201bps for March).

0

20

40

60

80

100

120

140

Bas

is P

oin

ts

European CLO Avg. AAA Coupon

Avg. AAA, Based on Coupon

0

5

10

15

20

0123456789

Euro

Bill

ion

s


Volume Count

0

5

10

15

20

25

30

35

2015 2016 2017 2018 2019

Euro

Bill

ion

s


Q1 Q2 Q3 Q4

Based on coupon.

23

0

50

100

150

200

250

Bas

is P

oin

ts

European CLO WACC

Wtd. Avg. Cost of Capital, Based on Coupon

0

50

100

150

200

250

Euro

Bill

ion

s

Loans Outstanding

Amount Outstanding

24

0

5

10

15

20

Euro

Bill

ion

s

CLO & New Money Issuance

CLO Loans

2.5

3.0

3.5

4.0

4.5

5.0

5.5

6.0

Per

cen

t

Bloomberg Barclays Pan-European HY Index

Yield to Worst

290

300

310

320

330

340

350

Bloomberg Barclays Pan-European HY Index

Last Price

New loan issuance, excluding repricings/refinancings.

Contact Details

Gianluca [email protected] Data – Syndicated Loans

Ruth [email protected] News – Leverage Finance Strategist

Mark Phillips*[email protected] Market Specialists – Credit, Loans and ABS/CLO

*Please contact if you would like to arrange a demonstration of Bloomberg functionality for leveraged finance

Disclaimer

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Leveraged Finance Chart Book...loan-to-bond refinancings including Kiloutou and Berry Global....

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Transcript of Leveraged Finance Chart Book...loan-to-bond refinancings including Kiloutou and Berry Global....