Up-tick in M&A signals return of European loan issuance in H2

Michelle D’souza

Senior reporter

European CLO market participants are optimistic that new loan issuance will pick up in the second half of the year, with M&A deal-flow on the rise.

EQT, for example, is in talks to buy Dechra Pharmaceuticals for £4.6 billion, a number of private equity firms are looking at Network International for £1.6 billion, while Apollo is looking to acquire John Wood Group.

Guillaume Tarneaud, partner and head of European performing credit at CVC Credit Partners, says the pickup in M&A activity means the market should create a pipeline for new deals after the summer.

“The timing gap between underwriting and syndication needed to be bridged”

Guillaume Tarneaud, Partner and head of European performing credit | CVC Credit Partners

The loan market, for the right credit, is starting to open slowly as more CLOs are marketed. Following Canyon pricing on 13 March, only CVC Credit and AlbaCore Capital Group have priced deals. But as Creditflux goes to press, a handful of managers — including Anchorage, BlackRock, CSAM, M&G, Palmer Square and Signal — are marketing CLOs (although a lack of triple A buyers appears to be a headwind).

Loan managers are also getting cash repayments on a few assets that have been sold recently, so can reuse that cash into primary transactions.

“Appetite and demand for paper is there — it’s just that timing gap between underwriting and syndication needed to be bridged by banks,” Tarneaud says. “Banks’ flex terms are still too wide for private equity sponsors, unless it is a well-liked credit and a quick syndication post-signing, so I think that’s why there is a lack of primary transactions.”

Once banks see the syndicated markets functioning better (and new primary loans trading well in secondary), Tarneaud says, they may restart taking underwriting risk and provide PE sponsors with better terms, which should reignite the loan machine.

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Global credit funds & CLO's

May 2023 | Issue 254

Published in London & New York.