Euro leveraged loan market at record high

European leveraged loan market volumes are at their highest since Standard & Poor’s (S&P) started tracking the data in 1999. S&P data recorded so far this year shows that leveraged loan volume in the first half of this year was €35.4bn. This represents more than one third higher than the first half of 2003, which stood at €24.4bn. Leveraged loan volume for Q2 2004, at €20.6bn, outstripped Q1 2004, which recorded €14.8bn. This places Q2 2004 at the third highest single quarter to date, behind the telecoms driven excesses of Q1 2001 (€25.7bn) and Q2 2001 (€25.6bn.)

S&P notes that while transaction flow is strong, so too is the level of prepayments. These are made up of early recaps, a pick up in IPO activity, trade sales and secondary buyouts. This has resulted in many investors being under lent and consequently under pressure to book new assets.

From January to end of June 2004 the total of institutional loans (mainly B and C term loans) prepaid stood at €2.8bn. Since 2002, European repayments, excluding Valentia’s 2001 loan, have run at an average of 4.6% per quarter of what was outstanding at the beginning of the quarter, compared to 11.4% in the US market. However, Europe’s repayment rate nearly doubled to 8.3% in Q1, when €1.4bn was repaid, and to 8.6% in Q2, when €1.5bn was repaid.

S&P also notes that Collaterised Loan Obligation activity is expected to remain busy over the 2004 summer period, including Duke Street Capital Management’s Duchess III CDO, which is expected to close early Q3.