LONDON, March 14 Pricing has fallen across the board in Europe's leveraged loan market, eroded by a lack of supply and high demand, as well as competition from high-yield bonds and the US loan market.
The slump in interest margins has occurred on new buyout deals such as French veterinary pharmaceutical firm Ceva Sante Animale and UK credit reference business Callcredit, and on existing credits that are now repricing, often mere months after last tapping the market.
"There is new pricing in Europe. There is not enough supply, which is setting a precedent for future deals," an investor said.
Many European buyout loans were being offered at 450bp six months ago and last month pricing for new buyouts was reduced to 425bp for deals such as classified advertising business Scout24 and catering equipment firm Hofmann Menu.
Since February pricing has fallen further, with Ceva Sante in the market with a dual-currency 668 million euro-equivalent ($930.36 million) Term Loan B that will pay 350bp on the euro portion and 325bp on the US dollar tranche. Both are offered with a 1 percent floor.
"Ceva's pricing is hard on the European market and it is structured like a US deal with no covenants. Many investors would prefer 425bp with no floor than 350bp with a floor," a leveraged finance banker said.
Prices have also dropped on sterling deals. A 177.5 million pound ($296.01 million) Term Loan B backing Callcredit's buyout will pay 475bp, down from 500bp paid on Term Loan Bs backing the buyout of Burton's Biscuits in December and UK-headquartered packaging company Chesapeake in September.
Interest margins on repricings are even more aggressive as investors succumb to harsh cuts rather than be taken out of a deal and repaid if they refuse the request.
As a result, borrowers are making a rapid return to the market to lower interest margins, even if there has not been any great improvement in company performance.
French smartcard maker Oberthur Technologies allocated a 461 million euro-equivalent repricing this week, cutting pricing on a $280 million loan from 475bp to 350bp and on a 260 million euro loan to 375bp, down from 500bp on the previous deal. Both were offered with a 1 percent floor.
Oberthur conducted a refinancing of its 2011 buyout loan in October on more favourable terms but decided to conduct another repricing after the market tightened further.
French funeral firm OGF also launched a repricing of loans that backed its buyout by Pamplona Capital Management less than six months after they were put in place.
"OGF is less than six months old and it is repricing already, that is crazy. The company's performance has not changed and there has been no great improvement," a second leveraged finance banker said. "M&A hasn't come through so borrowers are thinking, why not reprice? Borrowers can get better terms as the market has tightened a lot since they did the deals."
Goldman Sachs and JP Morgan are leading the repricing and are seeking to shave between 50bp and 75bp off a 575 million euro TLB to pay between 375bp-400bp from a current level of 450bp. They are also looking to remove a covenant. ($1 = 0.7180 Euros) ($1 = 0.5997 British Pounds) (Editing by Christopher Mangham)