The divergence between activity in the European and US leveraged loan markets has rarely been greater. European activity is not even 10 percent of the volume seen in the US market. In the years immediately preceding the global financial crisis, European loans comprised between a quarter and one-third of the two regions’ combined volume.
Europe’s lagging loan activity is a function of its booming capital markets, its banks’ balance sheet constraints and borrowers’ desire for looser terms. (See “Spain Rating Threatens High Yield Bonanza.”) By contrast, US boom-time conditions are boosting opportunities for borrowers to twist lenders’ arms on covenants.
According to Leveraged Commentary and Data, there was EUR 24.15 billion of new leveraged loan launches in Europe through October. That compares with the dollar equivalent of EUR 299.27 billion in the US, where volume had already exceeded last year’s total of EUR 268.28 billion, and was up roughly 70 percent from 2010.
LCD also reports that US lenders are succumbing to borrowers’ demands for more flexible terms. The S&P loan data consulting firm recently reported: “Since the fourth quarter began, incurrence-test-only loans account for 41 percent of institutional new-issue paper, or $24 billion, up from 25 percent earlier in the year.”
So, while European treasurers are finding it possible to get more amenable terms in the capital market, US treasurers are able to do so, to an extent at least, within their traditional loan vehicles.