European leveraged loan issuance fell almost 25 percent in the third quarter of 2018, according to a report by the Association for Financial Markets in Europe (AFME).

Leveraged loans, including first lien, second lien and mezzanine finance reached €27.1 billion in Q3, down 24.5 percent from €35.8 billion in the second quarter and 16.9 percent lower than in the same quarter last year.

Of this, leveraged buyouts dominated the field and saw an overall increase. In Q2, leveraged buyouts accounted for 29.9 percent of issued loans worth approximately €10 billion, but this jumped to 56.8 percent in Q3, worth €15.4 billion. Acquisitions followed with €6.7 billion of loans while refinancing accounted for €2.6 billion.

Most loans issued in Q3 were first lien, according to AFME, accounting for 96.2 percent of the total. Seven second lien loans worth €1 billion were also made, but no mezzanine loans were financed in Q3 2018 according to the report.

Just three sectors accounted for 60 percent of the leverage total, with chemicals dominating ahead of healthcare and professional services.

Including high-yield bonds, total issuance in Q3 slipped 26.2 percent from Q2 to €44.8 billion, the lowest quarterly total since Q1 2016.

Credit standards have also begun to ease according to a European Central Bank lending survey, owing to increased competition by both banks and non-bank lenders and lower risk perceptions relating to the economic situation.

AFME highlighted an S&P report in September 2018 that the 12-month speculative-grade default rate was 2.1 percent, slightly higher than the 1.8 percent reported at end of June 2018 but below the 2.2 percent seen a year ago. Moody’s reported default rate in September 2018 was 2 percent, down from 2.8 percent a year earlier.