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.