European High Yield Association: Leveraged loan activity drops sharply to €35.3 billion

By Jennifer Chiou

New York, Aug. 20 - European High Yield Association said in a report that leveraged loan activity continued to suffer the combined effects of stressed market and economic conditions, declining in the first half of 2008 to just €35.3 billion, compared to €187.7 billion in the first half of 2007.

The report also noted that there were no recorded high-yield bond deals in the second quarter as the primary market remained virtually closed. The total issuance of high-yield bonds and leveraged loans combined was €35.3 billion for the first half of 2008, compared to €221.7 billion in the same year-earlier period.

European High Yield said that market conditions are a large contributing factor to depressed investor appetite for aggressive non-traditional deal structures. There are fewer leveraged buyouts and other acquisition debt financing, including private equity sponsored deals with leveraged loan LBO and recap volumes falling steeply in the first half of this year to 69% and 94.5%, respectively, compared to the same period last year.

The report added that these market conditions are not expected to abate in the near term and issuance levels are forecast to remain muted.

There has been some reduction in the sizable European leverage loan backlog to €29 billion at the end of June from €34 billion at the start of the year, but issuers are facing a triple challenge of tighter financing, lower profit and economic growth trends, and inflationary pressure arising from higher commodity prices, the report said.

"Leveraged finance moves in tandem with market conditions and will be led by, among other factors, the continuing reappraisal of risk, diminished credit market liquidity, and the continued fallout from the global economic slowdown," Gilbey Strub, European High Yield managing director, said in a news release.

"As deals have dried up, the primary market was effectively frozen for the first half of the year. A slowing economy, lower profit trends, inflationary pressures and reduced credit availability also raises the specter of rising default rates later this year."

The European High Yield Association, an affiliate of the Securities Industry and Financial Markets Association, is a non-profit trade association representing participants in the European leveraged loan market.

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