European debt outlook

2023 overview

  • The European loan market performed well in 2023, with €75bn of issuances vs €37bn in 2022[1]. However, the market was clearly divided with high amend and extend driven issuances, €43.3bn (57.8%), making up for low M&A related syndication volumes which were at their lowest level since the 2012 Eurozone debt crisis[2]€16.1bn (21.5%)[3]. The remainder related to refinancings
  • As we have commented on previously, the average time extended has increased (3.2 years through 2023 compared with 2.8 years in 2022)[4]. Sponsors have also shown greater flexibility and have, when needed, injected further equity to reduce debt for otherwise performing assets
  • Looking back at the 2023 European mid-market, although we saw more activity in the last few quarters, overall volumes still lagged 2022 levels[5]. Looking closely at this activity, there were 720 issuances in 2023 overall, marking a 15% drop from 2022 (846 issuances). [6] The final quarter gave us cause for optimism however as Q4 2023 reported 13% higher issuances than Q4 2022 (196 issuances v 175 issuances)[7]

2024 outlook

  • The volume of deals in the European loan market has remained relatively steady in early 2024 against Q4 2023 volumes[8]. We have observed that low M&A volumes, combined with successful fundraising from CLOs and the resultant pressure to deploy, have created a window for an opportunistic repricing of European leveraged credit
  • In the short-term, borrowers may turn to the market to re-price deals completed during periods of higher yields, Q3 2022 to Q1 2023. However, as we believe M&A volumes will bounce back this year, new issuances are likely to take up an increasing portion of demand for credits going forward
  • Considering the subdued M&A activity throughout 2023, we expect a significant backlog of transactions to enter the market in the following months. This round of repricing has shown to sponsors and arrangers that the market is likely to welcome new deals, increasing confidence in the capacity to finance LBOs
  • Despite the ongoing challenges in the macroeconomic environment, risk of recessions in key markets and political noise creating uncertainty, we are optimistic that increased stability in the interest and inflation rate environment has created conditions more conducive to the return of M&A. Given the dominance of private credit in funding mid-market activity, funding 68% of LBOs between 2020 to 2023 against 32% for the syndicated market[9], private credit lenders keenly await this return

 

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References

*Unless otherwise indicated, all tables, data and statistics provided in this piece, including with respect to deal activity, have been collected via the February 2024 DC November Lender Survey, subject to the limitations of described below.
The February 2024 DC Advisory Lender Survey: (DC Advisory’s independent survey of 98 European banks and direct lenders. which was completed in February 2024 and conducted across UK, France, Germany, Austria, Switzerland, Spain, Belgium, Netherlands and Luxembourg (referred to herein as the “The February 2024 DC Advisory Lender Survey” or the “Survey”). Any such data, including league table data referenced herein is limited to the data provided by the Survey participants and is not meant to constitute definitive market data. The banks and lenders selected for the Survey are based on those that are most active in the market, and that DC Advisory interacts with the most. Accordingly, the Survey participants do not constitute an exhaustive list of banks and lenders who may have been active during the period addressed by the Survey. Comparisons to deal activity or other statistics from prior quarters or other periods are calculated by comparting the results of the Survey to the results from DC Advisory Lender Survey corresponding to the prior period, subject to the same limitations described above.)

[1] LCD European Credit Markets Quarterly Wrap Q4-2023

[2] https://www.reuters.com/markets/deals/dealmakers-see-rebound-after-global-ma-volumes-hit-decade-low-2023-12-21/

[3] LCD European Credit Markets Quarterly Wrap Q4-2023

[4] LCD European Credit Markets Quarterly Wrap Q4-2023

[5] The February 2024 DC Advisory Lender Survey

[6] The February 2024 DC Advisory Lender Survey

[7] The February 2024 DC Advisory Lender Survey

[8] The February 2024 DC Advisory Lender Survey

[9] LCD European Credit Markets Quarterly Wrap Q4-2023