High Yield and Leveraged Finance in Europe

On 25 April, Freshfields hosted AFME’s European High Yield and Leveraged Finance Frankfurt Seminar in our Frankfurt office. Lead by Michael Josenhans and Marvin Knapp from our Frankfurt and Hamburg offices, and Haden Henderson, Simone Bono and Lindsay Hingston from our London office, Freshfields spearheaded the discussions across three panels, together with other leading market participants and an engaged audience, covering the key issues facing the leveraged finance and high yield bond markets, M&A and restructuring across Europe and Germany. Our key take-aways and insights from the conference are outlined below.

Resilience of European broadly syndicated loan and high yield bond markets: after a strong start to the year, the broadly syndicated loan and high yield bond markets have digested higher inflation prints, ‘higher for longer’ and Iran’s recent attack on Israel in its stride in 2024 when compared to prolonged periods of inactivity and widening spreads following unexpected macro-economic data or geopolitical events in 2023. Macro-economic and geopolitical risks still exist but the syndicated markets are expected to be able to weather unexpected events given technical demand for issuance volume. 

Green shoots in M&A activity and strong demand for new paper: strong refinancing activity in Q1 2024 and technical demand for new issue volume has provided a good base for banks to underwrite committed financings and the market has seen stronger start to the year for event driven financings in the syndicated market with competitive M&A auction processes. However, M&A and associated new issue volume remains low as the valuation cap between buyers and sellers persist. M&A processes are taking longer in a more complex and active regulatory environment which is providing additional considerations for bank underwriting. However, sponsors have more tools available in 2024 to bridge the valuation gap, including with more sources of capital available across the capital structure with the return of the broadly syndicated loan and high yield bond markets, the continued availability by private credit and the return of the European IPO market providing more exit options for sponsors. 

Continued evolution and maturity of European private credit market: sponsors and corporates are benefiting from the ability to choose between the broadly syndicated loan market, high yield bond market and private credit to choose the best product on a credit-by-credit basis. Private credit market is here to stay and expected to find an equilibrium with the syndicated markets. While we see more deals going back to the syndicated markets with private credit providing additional leverage in the form of junior instruments in 2024, private credit is still a compelling senior financing option for certain credits, sectors and investment strategies and can sit alongside syndicated products in large cap deals. 

Increased restructuring activity and complexity of multi-process restructurings: restructuring activity has continued to increase in 2024 and is expected to continue as certain sectors and industries continue to face economic headwinds. This is particularly true of the real estate sector. German restructuring activity has been higher than in the rest of Europe and German directors’ liability considerations for issuers and borrowers require a timely initiation of turnaround measures. Use of Germany’s StaRUG is now widespread but there is a trend for issuers and creditors to consider the optimum forum for a particular restructuring. As there is no universal restructuring and insolvency regime across Europe and the UK, it is becoming increasingly common to implement ‘multi-process restructurings’, whereby parallel processes are used in multiple jurisdictions across Europe, the UK and also the US to achieve a successful restructuring.

#Finance #Leveragefinance #Highyieldbonds #Privatecredit #Europe #Insights