It’s a €120bn-high mountain of maturing debt in Western Europe.
That chart is from Standard & Poor’s. Here’s a bit of background, also from the ratings agency:
Approximately 90% of financing transactions in the European leveraged finance market consist of LBO deals, most of which are not publicly rated. The majority of these transactions were structured in 2006 and 2007 with tenors between seven years and nine years, which means that refinancing risk will increase substantially in 2013 and 2014, according to data from Dealogic and Standard & Poor’s (see chart 3). These transactions were based on structures that assumed a high level of EBITDA growth because of the necessity to provide for material deleveraging. This was necessary to attract investors, as the debt multiples on these transactions were high due to high purchase price multiples. However, that growth has not typically materialized, making deleveraging in many cases impossible.
Add to that the disappearance of traditional sources of funding, like bank loans and CLOs, for companies undertaking LBOs or without investment-grade ratings, and you have a wave of debt that will eventually need to be refinanced in what could still be quite constrained credit conditions. S&P’s solution is for Europe to follow in the footsteps of its US counterpart and tap the high-yield debt market.
Here, then,is S&P’s chart of the slow creeping return of the European high-yield market:
Related links:
LBO borrowers catch a break in bond rally – WSJ
High-yield offering sets positive tone – FT