| LONDON, July 16
LONDON, July 16 A recent flood of leveraged
loans in Europe are facing the prospect of investor pushback
over the summer months as investors, spoilt for choice for the
first time this year, become more selective over what loans to
Lenders have been asked to commit to around 20 leveraged
loans totalling approximately 13 billion euros-equivalent
($17.59 billion) by the end of July.
About ten bank meetings have taken place this week, a stark
contrast to the rest of the year, which has seen a lack of deals
and very little choice for investors.
Technical conditions meant Europe avoided the pushback
experienced by the US market earlier this year and European
investors accepted increasingly aggressive terms from borrowers
on even-driven financings, refinancings, dividends and
The recent spate of deals means Europe is now at a tipping
point where investors look likely to call the shots on current
deals in the market.
"Borrowers have tried to avoid August and the slow summer
months by rushing to get deals out in July. It makes sense that
all these deals have come to market now but if I had a deal, it
would be tempting to wait until after the summer in order to
avoid getting lost in the crowd," an investor said.
Investors and bankers agree there should be enough liquidity
to finance the deals in the market following a number of
repayments from loans that have exited to the high yield bond
market or opted to list. Liquidity has also been bolstered by
new CLO issuance, which contributed 2.5 billion euros of new
money in June.
The two main challenges to successful syndication are the
tight timetables investors have to comply with and pricing.
With restricted time to look at all these deals, investors
will focus on the better quality credits and cherry pick the
best ones to invest in.
"The initial concern is whether the market can cope. There
is no question regarding liquidity as the money is there. There
is a capacity issue as there are a lot of deals to look at and
that takes time. If a deal doesn't feel as though it will work,
investors are likely to drop it quickly and move onto the next,"
a senior banker said.
Investors will be investing in the better quality assets and
will also want to be paid for commitments to certain deals.
There will be differentiation between assets and pricing rather
than investors taking a blanket approach to deals.
"Investors will be picky. Rather than suddenly every deal
having to come at 98.5 or flex up, good deals will get done bad
deals may not get over line. There will be more differentiation
rather than a wholesale price increase," the investor said.
The differentiation will bring back a certain element of
market discipline that has been absent this year on certain
deals. Investors are expected to be far more vocal on what they
like and don't like.
Deals in the market include healthcare firms Quiron,
Generale de Sante, Independent Clinical Services, Sebia and
Vedici; energy and insurance company Delek Europe; drug capsule
maker Capsugel, Belgium-based Continental Foods; Gas Natural's
telecommunications affiliate GNFT; Swiss sports marketing
company Infront; Materis' paint manufacturer Paints and cement
producer Chryso; French underwear maker DBApparel; Germany-based
plastics maker Styrolution; Dutch TV production company Endemol;
ports services company HES Beheer; German publisher Springer
Science+Business Media and German pharma company Aenova.
"The number of deals in the market makes it harder for
arrangers but it introduces more discipline and creates a proper
market where investors are not forced to take very deal," the
senior banker said.
A second banker said: "There will be winners and losers.
When investors have a lot to choose from, big is good such as
Quiron, while a chequered history is bad like with Endemol."
Arranging banks are expected to be more cautious when
underwriting new deals as investors become more selective. The
very top sponsors will attract better terms than weaker sponsors
as they are trusted more and have higher deal flow, so bankers
will want to stay close to them, bankers said.
($1 = 0.7389 Euros)
(Editing by Christopher Mangham)