Refinancings and recaps drive UK leveraged loans

A report from Marlborough Partners shows UK leveraged loan volumes up in Q3 compared with Q2, but overall activity in 2016 is set to be significantly lower than the previous year as we head into the fourth quarter.

A push towards refinancing and recapitalisations in the aftermath of the Brexit vote drove an uptick in UK leveraged loans in the third quarter, although the year is still set to be significantly down on volumes compared with 2015, a study has claimed.

UK leveraged loan activity totalled €2.1 billion in the third quarter, slightly more than the previous quarter and 9 percent higher than the same period in 2015 figures from advisory firm Marlborough Partners show.

But 2016 leveraged loan volumes look to be significantly lower than 2015. Leveraged loan volumes totalled €2.1 billion in the second quarter and €2.5 billion in the first quarter, much lower than the 2015 respective figures of €2.9 billion and €6.8 billion.

Driving the increase in activity for the third quarter was [delete] an increase in opportunistic financings and recapitalisations as market yields fell across the third quarter, the report claimed.

Institutional spreads tightened by 62 bps to an average 488 bps, following the Bank of England’s intervention shortly after the UK voted to leave the European Union.

Across Europe, it was a different story. Loan volumes were 10 percent higher than the previous quarter, reaching €18.4 billion. A record number of repricings valued at €8.5 billion were recorded by the advisory firm.

The European high yield market saw record activity in September with volumes hitting €13 billion, this despite a slow start to the quarter following the June vote.

Separately, Marlborough reported on the increasing trend of asset managers turning to fund financing from banks and alternative lenders, where the last 12 months has seen a sharp increase in demand for these facilities. Such financing is provided in the form of subscription lines, term debt financing and preferred fund level instruments.

Gurjit Bedi, a partner at the advisory firm, said: “The number of enquiries made by sponsors has increased dramatically for fund level financings, particularly in the mid-market across Europe.

“While there are a number of interesting alternative products the purpose of implementing the facility may well be very different, the nature of the instruments is still bespoke and requires a tailored approach to structuring and implementation for each sponsor.”