Institutional loans produced steady performances in January and February this year of EUR 8bn and EUR 10bn, respectively; however, activity since then has fallen sharply in response to the worsening macroeconomic environment. The impact of Russia’s war in Ukraine following its invasion on 24 February has severely hampered capital markets action.
Euro area inflation has been compounding the misery. Inflation, which had been steadily creeping up in 2021 to 5% from 1%, was levelling out towards the year-end. Yet the rise accelerated again in February, pushing up to 5.9% before rocketing to 7.4% in March. While this has thrown major roadblocks into the paths of issuers seeking a return to market, some deals did manage to steer their way through syndication.
Helping hands: buyouts prop up issuance
Some 47 institutional facilities totalling EUR 13bn have made their way into the market since the surge in volatility from late February.
Deals backing leveraged buyouts (LBOs) have kept the institutional loan market afloat, accounting for over 60% of issuance since March. Refinancing activity, typically far ahead of other uses of proceeds, has been severely reduced by overall increases in pricing. Only five refinancings have taken place this year: Affidea, Atlas for Men, Veonet, BoConcept and Independent Vetcare. By comparison, 23 deals backing LBOs have been raised in this time.
Clock watching: completions are slowing
The average time from confirmation of an auction process to its subsequent funding of a deal is currently 71 days, with 70% of deals completing within 50-90 days. Therefore, auction processes completed now would likely enter syndication in mid-September, with a view to finalising syndication by the end of that month. This also means that for deals to be syndicated now, their auction processes should have completed in early May. The stall in activity at around that time is likely to manifest in bare syndication for the rest of the summer.
Switching focus: issuance pivots to non-cyclicals
Compared with the past five years, firms in the pharma, medical & biotech sector, as well as consumer and business services sectors, have issued a large proportion of debt. Naturally, sectors can be expected to be more concentrated because of smaller sample sizes; however, eight pharma/bios, seven consumer and four business services companies have issued since March – high numbers considering the environment. Notably lacking in the mix to date are telecoms and industrials & chemicals firms.
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