Europe’s mezzanine market witnessed fewer jumbo mezzanine facilities in 2003 than in 2002, according to a report from ratings agency Fitch entitled, The European Mezzanine Market in 2003: Still Upwardly Mobile? The main driver of overall mezzanine issuance in 2003 was related to either secondary or tertiary buyouts or recapitalisation activity.
With the European high yield bond market once again open for business in 2003 and fewer jumbo mezzanine facilities issued, Fitch observed a fall in both the number of rated transactions with mezzanine debt and in the volume of rated mezzanine issuance compared with 2002.
The substantial level of issuance relating to the recycling of existing transactions contributed to a high level of warrantless mezzanine. Such transactions lean naturally towards this particular product as equity upside may be less meaningful the second or third time round.
Of the Fitch-rated mezzanine issuance in 2003, 62% was warrantless. Default rates remained low. During the year five issuers defaulted on €336.1m of mezzanine out of €11.483bn of Fitch rated mezzanine.
The report concluded that 2004 may herald the dawn of more tightly priced mezzanine, the issuance of the first €500m mezzanine facility and the potential push by investors towards the introduction of call protection. The Fitch data is based on its mezzanine portfolio as at year end 2003, which contained over 170 rated mezzanine facilities.