Not us, mate – European debt is different

Faced with potential constipation in the US leveraged loan market, European players are eager to celebrate the differences between the two.

‘Them, not us’ is apparently the line of the moment, say S&P Leveraged Commentary & Data in their weekly European analysis.

While usually happy to copy the latest trend from the US to help win mandates, this week the key mission was convincing participants of the inherent differences between the two.

“Europe is not the US, everything is different,” an arranger is quoted by S&P LCD as saying. “The supply-demand dynamic is different; the US market is substantially a cov-lite market, while Europe is not; there are different deal dynamics, market dynamics and yield dynamics at work.”

S&P LCD reckons that the fall-out stateside might push Europe along its slightly divergent path of “cov-loose” deals, those with at least one maintenance covenant, rather than going the pure cov-lite route. For now, they say, there is only one pure cov-lite deal left in the pipeline: the circa €1.5bn Debitel financing. Though last week, while US arrangers were adding covenants back, in Europe companies such as Smurfit-Kappa, Springer, and Orangina were still stripping out clauses in their borrowing. But say S&P LCD:

The real test of ongoing European appetite – and the resilience of the market – no doubt will be Alliance Boots. Structured long before any concerns crept into the market, the deal\’s size, with £7.8bn of senior debt, and £750m of mezzanine means the arranging group would have been especially eager to get syndication underway, and the deal off their balance sheet. It\’s a huge amount of sterling paper to get away, especially with a reduced covenant package (the deal is expected to include at least one maintenance covenant.)

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