LONDON, Sept 1 (Reuters) - Despite another serious bout of global volatility, Europe’s leveraged loan market is gearing up for the launch of around 10 deals totalling 4.5 billion euros ($5.06 billion) in September, with success or failure likely to be determined by a flight to quality.
The market is highly liquid after several large repayments and the continued issuance of CLO funds, which are the main buyers of the loans.
Cash-rich investors are expected to cherry pick deals, which means arranging banks may have to make concessions on pricing and documentation for any deals perceived to be weaker.
Investors are looking for a premium on sterling deals, which could affect a 550 million pound dividend recapitalisation for UK caravan holiday park operator Park Resorts and a 650 million pound term loan B refinancing for British cereal maker Weetabix, which are both expected to launch in September.
Other September launches include German elevator components maker Wittur; Galileo Global Education; London-listed packaged food company Nomad Foods ; French lifting, elevation and safety equipment provider Tractel; Polish state-run railways PKP’s utility arm; French digital media company Technicolor; and Netherlands-based textile technology group TenCate.
A loan backing online gambling company 888 Holdings’ acquisition of London-listed Bwin.party could also return to the market if a sale goes ahead. The financing was pulled in August due to a rival bid from British online gambling firm GVC.
“Some deals will be fine but if they all come at the same time and investors know this, they will be selective,” an investor said.
Global market instability in the last few weeks stemming from China’s stock market rout and tumbling commodity and oil prices has upped the ante for the deal launches. Although lenders may have to widen discounts on some of the 10 underwritten deals on the block waiting to launch, they should have enough flex to cope with any adjustments, market sources said.
With relatively few deals in the market over the summer, European leveraged loan prices have mostly been insulated from wider global economic turmoil. Secondary loan prices fell by around 50bp during the worst of the turmoil in mid-August, which could increase the discounts that lenders have to offer to close deals, as well as pricing on new deals if a wider pricing correction takes place.
“The loan market is only slightly wider as a result of the volatility and it didn’t fall as much as it should have done, compared to other markets. There is still a lot of appetite and good credits should be OK but there may be some play on fees,” the investor said.
A pipeline of new buyout deals is also building as various auctions move forward in September. ($1 = 0.8887 euros) (Editing by Tessa Walsh)