Monthly European Loan Market Update - September 2019

Monthly insights and updates from the Invesco Fixed Income team

Sep 10, 2019 | Invesco Fixed Income

The Credit Suisse Western European Leveraged Loan Index (“CS WELLI” or “Index”) returned 0.05% in August, comprised of principal return of -0.31% and interest return of 0.35%.1 Year-to-date (“YTD”) returns are 3.61%.1

 

August was characterized by persistent (and amplified) US-China tariff tensions, an increased focus on deteriorating economic data from the US, China, and Germany, and Brexit headlines fueled by a new UK Prime Minister. The inversion of the ‘2s10s’ US Treasury curve underlined concerns about recession risks in the US, with the quantum and timing of potential rate cuts dominating research and strategy reports. The month witnessed an ongoing push into less risky debt, with most European 10 year government yields hitting record lows. The month closed with $17 trillion of negative yielding debt globally, which is an all-time high.


European loan issuance during August was thin at €0.33 billion, in line with last year’s volumes and typical for the peak summer/vacation period. Some small add-ons were brought to market during the month, typically used to repay drawn revolving credit facilities (RCF). Similarly, European CLO issuance was negligible for the month.


EUR-denominated loans within the CS WELLI returned +0.22% during the month, reflecting a relatively strong secondary market due to the muted issuance. In contrast, USD-denominated loans within the Index (about 28% of the Index) returned -0.38%, as the above-mentioned macroeconomic drivers took effect.1


Expectations are for a busy September, with several deals loaded into the pipeline. S&P Leveraged Commentary & Data’s (LCD) forward loan calendar is in excess of €11 billion across multiple deals (with a few multi-billion ‘jumbo’ transactions expected) and CLO volume has 13 deals earmarked (€4.6 billion). Expectations of further tightening of AAA liability spreads has increased, tempered by some caution regarding the broad global and political risks detailed above.


The ECB is expected to announced measures to stimulate European growth in a few weeks, a likely positive catalyst for leveraged loans.


The CS WELLI’s nominal value (size of the market) at the end of the month was €311 billion, a 9.6% increase YTD.1


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^ 1 Credit Suisse Western European Leveraged Loan Index (CS WELLI) in EUR as of Aug. 31, 2019.


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