Nearly 3.5 billion euros ($3.91 billion) of loans are expected to launch into Europe’s leveraged loan market in the next two weeks, despite a recent wave of macro volatility, as banks and borrowers attempt to sell risk before the summer.
Irrespective of the outcome of last-ditch attempts to keep Greece in the euro, a number of loan bankers have prepared a pre-summer launch of some of the larger loans to take advantage of a market that has generally remained immune to the volatility.
Arrangers and borrowers are always eager to avoid carrying risk over the summer period, and that has intensified as fears grow about the potential impact of contagion from developing macro events involving oil prices and China’s tumbling stock market.
“Generally loan deals are ready to go – they have just been waiting for the right market window. For a large-sized loan on a strong company, it looks like loan investors will be receptive. It is risky to wait for a better market because if China collapses over the summer it won’t be good for anybody,” a senior loan banker said.
A 1.85 billion euro loan backing Apollo’s buyout of Saint-Gobain’s glass bottle unit Verallia and around 1 billion euros of loans for CVC’s buyout of French smart card connector manufacturer Linxens are two of the larger loans expected to launch shortly. The Verallia deal was originally scheduled to hit the market at the end of June but has been delayed by the Greek crisis. Both are perceived as large financings for strong companies with reputable buyers behind them.
As the loans prepare to launch within the next two weeks, arrangers have been paying close attention to pricing deals in order to attract as much investor appetite as possible in an unpredictable macro environment.
An unresolved Greek crisis, for example, was expected to prompt pricing to increase slightly by 25bp to around 450bp-475bp over Euribor and OIDs to widen to around 99 from 99.5, bankers said.
Bankers doubt OIDs will drop to the low levels of 97 or below seen in prior years during the summer, as loan paper has held up well in Europe’s secondary loan market despite the wider macro volatility, unlike the high yield bond or equity markets.
Comparables for Verallia such as Swiss packaging company SIG Combibloc and Austrian packaging group Constantia have dropped by around a point since the end of June, when Greece announced it would hold a referendum on austerity, but were still quoted over par on July 9 at 100.1 and 100.2, respectively.
“Investors have a lot of cash to invest: the question is where you put pricing, as investors don’t want to lose money on the break, but even when the Greek government called the referendum and equities traded off the loan market hardly moved.