The European leveraged loan market has shown some welcome resilience this year. July in particular beat expectations. There were so many deals that several had to spill into August, a traditionally quiet month.
Among them were Minimax Viking, the German fire protection equipment provider, and ConvaTec, the UK developer of medical technologies. Both priced their deals 50bp to 75bp tighter than the tight end of guidance.
And investors in Europe have not been the poor cousin in the latest wave of deals. In its loan in June, German chemicals firm Oxea even increased the size of the euro tranche and cut the portion in dollars. The €200m term loan ‘B’ tranche was upped by 125% after the borrower was overwhelmed by demand from investors in Europe.
German ceramics manufacturer CeramTec, and Gardner Denver, the US industrial compressor and pump-maker, issued their new credit facilities with OIDs of just 99.5. Their euro tranches were as oversubscribed as those in dollars, and all were reverse flexed by the same number of basis points.
Such has been the strength of euro demand that some market participants have gone so far as to suggest that dollar portions even risk harming a deal. When Springer Science+Business Media, the German publisher, struggled to place its transatlantic deal last month, some bankers said it would have been more successful if it had gone for euros only.
The loan — $1.591bn in dollars and €615m in euros — sold at an OID of 96.5, down from an initial level of 99. Loans bankers said it was weighted much too heavily towards dollars for a company that is so European. It was US investors that were holding out for the deeper discount, they reckon. European investors, more familiar with the company, would have been happy with 98.
Not all good
Just one year ago, this sort of energy in the European leveraged loan market would have seemed unimaginable. The market in Europe has many achievements to be proud of. But that does not mean that everything is possible.
Take BMC Software. Its difficulties in placing its $4.233bn-equivalent deal earlier this month are a sharp reminder of the hurdles that still exist for larger transactions seeking to tap liquidity on the continent.
The US enterprise software provider found insufficient backing for the euro tranche of its deal among European investors. BMC had to reduce the debt in euros from €750m to just €500m, having received commitments from only 30 names. In the US, 150 lenders had expressed interest in the dollar portion.
Some €250m of bond financing were also scrapped, further emphasising the lack of support for BMC's euro plans. Existing holders of BMC bonds rolled over into the new dollar bonds instead.
That European investors lacked the funds and will to back BMC was a clear signal that they are not yet ready for big deals — particularly when not from a home-grown borrower — however much they have been longing for new money.
Leveraged loans are unquestionably picking up in Europe. But transatlantic borrowers must be aware of the European market’s limitations. The more they need, the larger the dollar chunk has to be.
