DC Advisory's European Debt Market Monitor: Q1 2019

Europe highlights

Throughout 2019, political and economic uncertainty across Europe has prevailed. With a building consensus that the market is near the top of the cycle, lenders are managing portfolios accordingly – with a strong emphasis on downside risks. Subsequently, we have seen a flight to quality with strong proven credits in performing sectors (e.g. Infrastructure and Technology & Software) continuing to secure borrower friendly terms, while credits in challenged sectors are facing challenging market reception
Liquidity remains strong, with numerous direct credit providers closing funds in Q1 which, while a proportion has already been successfully committed, a lot of dry power is yet to be deployed
Given underlying M&A was muted in Q1, the refinancing / recapitalisation activity was strong as sponsors, future proof portfolios or, possibly with an eye on future fund raising, use debt to deliver returns to investors in lieu of a full exit. In this scenario, portability clauses are a must for borrowers and sponsors and accepted by lenders who view it as an opportunity to extend average hold period
Given YTD volumes, and extent the of CLO warehousing / ramping of managing accounts, we expect to see some opportunistic refinancings and repricings, if current market conditions hold
The DC Advisory Capital Advisory team continue to be very busy on the refinancing front, enabling borrowers to take advantage of benign market conditions and to lock in advantageous terms

LBO transactions per region

UK Highlights

Leveraged loan volumes rebounded slightly in Q1 2019 with a strong performance in February and March
However, deal pipeline continues to be impacted by prolonged Brexit uncertainty

Type of refinancing by structure (UK)

The UK sponsor backed mid-market was very busy in Q1 2019, with strong activity in both unitranche and club deal issuance

France Highlights

Despite low volumes in January, the French market remained active
Q1 2019 volumes have been primarily driven by M&A activity (Comexposium, Hana Group, Stella, Proxiserve, INSEEC) and to a lesser extent, refinancings and add-ons (DomusVi, Colisée, Ceva)

Number of deals per quarter (France)

Strong leveraged financing activity has continued in France, with issuance broadly flat at 24 deals in Q1 2019 (vs. 26 in Q4 2018) with LBOs accounting for over two-thirds of deal flow

DACH Highlights

The leveraged loan market slowed in January and February, however activity recovered slightly in March with a number of auctions coming to market
Financing terms continue to be competitive on both all-senior and unitranche debt as lenders chase limited supply. Alternative lenders maintain a sizeable market share

Issue volume per deal type (DACH region)

In Q1 2019, the DACH leveraged loan market slowed following a drop in M&A and lending activity, however alternative lenders maintained a sizeable market share

Spain Highlights

Spanish leveraged loan volumes recovered in Q1 2019 (13 deals vs 6 in Q4 2018), primarily driven by an increase in M&A activity in the market
Mid-market transactions continue to be dominated by local banks (e.g. Frías Nutrición, Litalsa) despite an increased presence of direct lenders