AI: U.S. Companies Taking Advantage of the Significantly More Favorable Loan Environment in Europe

Actionable Ideas for Companies and Sponsors

U.S. Companies Taking Advantage of the Significantly More Favorable Loan Environment in Europe

The European leveraged loan market continues to present borrowers with a more favorable issuance environment compared to the U.S. leveraged loan market. This trend has been created by (i) a government bond rally across the EU region sparked by expectations of continued monetary easing, (ii) an increasing universe of investors targeting lower-rated transactions in search of yield in the face of negative interest rates and (iii) strong technicals buoyed by year-over-year increases in European CLO issuance and sizeable inflows into European high yield funds.

The key benefits of the European leveraged loan market include (i) the approximately 2.0% net rate advantage between the underlying base rates of 3-month EURIBOR versus 3-month LIBOR, (ii) a lack of new issuers in the European market thus driving investor interest in the European tranches of USD-dominated capital structures and (iii) the opportunity for the issuer to better match the capital structure to underlying Euro cashflows, a key benefit for sponsors focused on avoiding future interest rate hedge breakage costs and/or FX-driven risk upon exit.