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European leveraged finance issuance slowed to a trickle in the first quarter of 2008 accounting for just €11.1 billion of leveraged loan volume, according to a report released today by the European High Yield Association (EHYA), an affiliate of the Securities Industry and Financial Markets Association (SIFMA). Total issuance for the first quarter was a dramatic drop from the €89.4 billion recorded in the first quarter of 2007. Significantly, there were no high yield bond issues for the quarter reflecting sharply reduced investor demand for higher risk credit products and the continued pressure from market turmoil placed on leveraged finance.
The European Quarterly High Yield and Leveraged Report, which compiles and analyses European leveraged finance data, reports that investor risk sensitivity, liquidity constraints and uncertain pricing continued to depress market conditions and together contributed to lower issuance in the quarter. These conditions are expected to persist in the near term until the market regains traction. Central bank actions, particularly by the US Federal Reserve, have had some positive effect with high yield spreads tightening late in the quarter.
Meanwhile, European banks are slowly beginning to clear the backlog of leveraged loans from their books, which is valued at around €47.0 billion by Merrill Lynch. The pace of clearance is somewhat slower in Europe than in the US. Analysts suggest that European commercial banks could be holding out for a rebound in depressed loan prices.
“Despite the subdued performance of the leveraged finance market the recent steps taken by US banks to reduce their loan overhang is a good sign,” said Gilbey Strub, managing director of the EHYA.
“The willingness of banks in the US to begin selling could kick-start a trend here in Europe. If the loans are trading at an attractive enough price then traditional investors and “opportunity” funds may take advantage of the increased volumes of distressed debt,” she added.
The full report with additional details and graphics on market issuance can be downloaded from www.ehya.com
