European Loan Market Comment

By Alex Woolrich, Portfolio Manager at ECM

The European loan market has seen limited activity this week as the late summer lull continues, with no new loan deals launched and the secondary market seeing little volume. Market participants awaited Wednesday’s FOMC meeting minutes for indications of when tapering of Fed QE purchases might begin, but are also holding back cash to invest in what will be a healthy supply of deals in September. The LBO pipeline was bolstered on Monday with the news that CVC had agreed to buy Skrill, a European online payments firm, from Investcorp for €600mm, as well as indications that the general syndications of the loans supporting Carlyle’s acquisition of Chesapeake, the UK packaging business, CVC’s acquisition of Campbell Soup’s European activities and Pamplona’s acquisition of OGF, the French funeral business, would all launch next month.

In the primary market, private equity sponsor EQT took full advantage of the pause in new issuance to complete the re-pricing of two of the tranches financing their healthcare business, BSN Medical. The company requested an additional €40mm to support an add-on acquisition whilst simultaneously reducing the pricing for their EUR and USD B facilities, first by 75bps and then, following significant demand for the new money, by a further 25bps. This leaves the EUR tranche paying a 1.00% Euribor floor and 3.25% margin and the USD tranche paying a 1.00% Libor floor and a 3.00% margin, down from an all-in return of 5.25% and 5.00% respectively. Consenting lenders were paid 25bps in the form of an original issue discount. In a purely European context, this request was very aggressive, but BSN Medical is a cross border transaction and so the US market’s current willingness to accept lower margins (as evidenced by the recent transaction for market peer Convatec) influenced the rest of the syndicate to grudgingly accept the lower economics on offer for fear of losing their exposure to a good company with a solid track record, as dissenting lenders would have been repaid at par.