Monthly European Loan Market Update - September 2020

Monthly European Loan Market Update - September 2020

The Credit Suisse Western European Leveraged Loan Index (“CS WELLI” or “Index”) returned 1.20% in August, comprised of principal return of 0.87% and interest return of 0.34%.1

Throughout the month, global markets have pushed higher. In aggregate, developed nations’ stock markets jumped by 6.6% in August, its largest August move since 1986.2 This was aided by fresh sparks of fiscal and monetary stimulus as well as Q2 earnings, which beat expectations. Furthermore, improved economic forecasts added momentum. For instance, forecasts for German 2020 GDP (Europe’s largest economy) were increased to -5.8% from -6.3% given a faster-than-expected rebound in economic activity, which compares favorably to fears of double-digit declines earmarked in the spring.

Similarly, the leveraged loan market equally rallied on market optimism as well as the better-thanexpected Q2 earnings. The CS WELLI was up by 0.9 points during the month, closing at an average price of €94.13.1

Primary loan markets stayed surprisingly active during the traditional August holiday period. New issue volume during the month came in at over €1.5 billion (bn) – more than double compared to the same time period last year – supported by the launch of the jumbo, cross-border (multi-currency) transaction of Swiss Telco UPC acquiring its competitor Sunrise Communications, which included $1.3bn and €0.4bn term loans.

The CLO market on the stayed relatively quiet during August, with €0.5bn of new issuance, bringing year-to-date (YTD) volume to €14bn – down by 44% as compared to the same period last year.3 AAA spreads have stabilized around the 140 basis points (bps) level – up circa 50bps for the year, but more than 150bps tighter compared to the levels reached in March-April. While creation of new CLO warehouses remains muted, it is likely that there remain numerous pre-pandemic warehouses – many of which are expected to launch soon, which could create potential demand for the asset class.

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1 Credit Suisse Western European Leveraged Loan Index (CS WELLI) in EUR as of August 31, 2020. Past performance is not a guide to future returns.
2 MSCI World Index as of August 31, 2020. The MSCI World Index captures large and mid cap representation across 23 Developed Markets (DM) countries.
3 Barclays Credit Research as of August 31, 2020.