European leveraged finance up in 2016 – report

Leveraged loans were up last year, while high yield bond issuance continued a downward trend, according to an AFME report. Default rates were up slightly with an expected rise above 2% in 2017.

Marked increases in leveraged loan transactions across the European market powered total leveraged finance issuance to €202.7 billion – an 18.5 percent increase in 2016 compared with the year before.

Figures from the Association for Finance of Markets in Europe (AFME) highlight a surge of leveraged loan issuance, which includes high-yield bonds, in the fourth quarter reached 54.6 billion.

Total leveraged loans reached €121.3 million for 2016 – a 60 percent increase on the €75.7 million figure reached in 2015.

High-yield bond issuance saw a 14 percent drop – €81.3 billion – compared with the year before and continues a trend of issuance dropping since the high of 2014, when issuance was north of €100 billion. The total came from 159 deals completed across the region.

Notable high-yield issuance completed in the final quarter last year included Guala Closures, a metal company, which tapped the capital markets with a €510 million offering with a coupon of 3M EURIBOR plus 475 basis points and the finance services firm CNH Industrial Capital issued a €400 million bond with an interest of 3.88 percent.

One trend picked up by the report is the increasing number of ‘amend and extend’ transactions. In the fourth quarter, €12.9 billion A&E financing took place, significantly up from €900 million. But this does not reflect the wider trend of the year, which found A&E refinancing was down 18.5 percent from €23.3 billion in 2015.

Defaults on leveraged loans reported a minor uptick and are predicted to rise above 2 percent in 2017, according to the report.