UK leveraged loan issuance rockets as liquidity improves

 A rush to invest remaining CLO capital and improved leveraged loan markets will aid buyout activity in the first half of 2012, predicts debt advisory group Marlborough Partners in its latest report.    

 Leveraged senior loan issuance surged 110 percent to €2.6 billion from Q3 to Q4 according to debt advisory firm Marlborough Partners.  

Total volumes for UK leveraged senior loans were down 11 percent to €8 billion over the whole year, while overall European issuance was down 30 percent on 2011 levels. This demonstrated the UK private equity market remained comparatively resistant versus the wider European region, Marlborough said.  

The high yield market however, continued to be strong in last quarter of 2011, with primary bond yields moving to record lows.  

“Private equity funds continue to see the current liquidity as an opportunity to improve existing capital structures of their portfolio companies, extend loan maturities and return dividends to their investors,” Romain Cattet, partner at Marlborough Partners, told Private Debt Investor. 

While he cautioned the second half of 2013 might be less positive with reinvestment periods for 70 percent of CLOs coming to an end, he said increased liquidity would enable new buyouts and more opportunistic lending in the form of recapitalisations and refinancing in the first half of the year. 

“Private debt funds have a very important role to play in order to compensate for the reduction in bank and CLO liquidity,” explained Cattet. “LPs are more positive about the product and several funds have been raised recently. As a result, we believe private debt funds will increase their market share in the next few years.” 

Historically limited to companies with a large asset base, the retail bond market has become more relevant for private companies, Cattet said. Since the inception of the Order Book for Retail Bond (ORB) in 2010, there have been 24 issues launched for a total of £2.5bn, with 15 issues completed in 2012, the report found.  

Cattet expects this trend to continue in 2013. “The retail bond market is not yet a primary source of refinancing for mid-market UK LBOs.  But as the market develops – and we believe it will – refinancing processes will need to take a retail bond into account as a credible alternative to bank debt. 

“The ability to combine private senior debt able with commercial bank debt will be attractive in 2013. The more expensive type of unitranche/private debt may, in 2013, be limited to complex credits or difficult refinancing [situations],” added Cattet.