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Leveraged loan market left reeling by brexit


The European leveraged loan market has entered a period of uncertainty after Britain voted to leave the EU. On Friday loan investors and bankers digested the news of Brexit and tried to work out the knock-on effects on a market that was already suffering from low deal supply and high demand.“Just extraordinary. There will be a period where people need to process it but they will adapt very quickly and start working through the consequences,” a loan banker said.”The bulk of the leveraged loan market is based in euros and is senior secured so it should be okay. Undoubtedly there will be equity volatility and valuations might alter, but it’s unlikely to affect the bulk of the credit in the market, which should remain relatively stable.”He said volatility will likely push yields down on higher-rated credits and lead yield-hungry investors to invest further down the credit spectrum.“M&A could be impacted by uncertainty and valuations could be affected. Deal flow will be a concern I think. But the loan market as a whole should stay a haven of yield and stability and will stay open.”In the secondary market, the spread between bids and offers widened, as traders showed a willingness to buy into market weakness, but investors were reluctant to sell, one loan investor said.“There’s stuff being marked down but no real volume to it,” he said. UK biscuit company United Biscuits was bid at 98.75% and offered at 99.75% on Friday, according to Thomson Reuters LPC data. It was previously bid at 99.75% and offered at 100.5%. Meanwhile, Swiss chemical company Ineos was also bid down at 95% versus 97% on Thursday, while it was offered at 98.5% versus 99% on Friday. UK gambling company Gala was down 2% to a bid of 98% from a bid at par, while it was offered at par versus 100.5.

A second investor said he expected priced CLOs may step in with bids if prices drop a further three or four points.“There’s no volume right now if things do fall then people might step in but at the moment there are no buyers and sellers,” he said. Bankers said the market had still not found its pricing level, but it was likely to widen in the aftermath of the vote amid wider volatility. This will scupper opportunistic deals that had been poised to come to market if the referendum outcome had calmed financial markets and maintained high loan pricing in the secondary market.

SLIM PICKINGS The pipeline for new buyout financings was already slim ahead of the referendum, with French real estate services firm Foncia’s €1bn debt package and Bilfinger’s building and facility services unit’s €1.25bn all-senior secured financing preparing to launch in July.“I don’t think deals will rush to market but by the following week there may be some clarity on whether pricing hurdles have changed,” a second loan banker said.“Verisure and Verallia pricing at 450bp [earlier this month] will probably look like fantastic trades by the end of the year.”However, he said the fundamentals of a demand-supply imbalance in the European leveraged loan market remain unchanged.

Any impact will be tempered by the lack of deals in the market, a third banker said.”What it does do potentially, it may reel in a few structures. If it doesn’t push pricing up it will certainly put a floor on pricing,” he said.“Does it mean significantly lower volume? We already have low volume. People still need a return, we will be in a lower interest rate environment for longer, and leveraged loans provide that return.”But he warned in the longer term there will be more pockets of volatility affecting financial markets including the loan market as Britain negotiates its exit from the European Union and the eurozone deals with the consequences.“It’s more of medium term and longer term question – what does the market look like as the smoke clears?”The European market will also be keeping a close eye on turmoil elsewhere including in the US, which is a larger more liquid market. ; var median = (relatedItemsTotal / 2); var $relatedContentGroupOne = $('.related-content.group-one ul'); var $relatedContentGroupTwo = $('.related-content.group-two ul'); $.each($relatedItems, function(k,v) { if (k + 1 = median) { $relatedContentGroupOne.append($relatedItems[k]); } else { $relatedContentGroupTwo.append($relatedItems[k]); } }); } else { $('.third-article-divide').append($('div class="related-content group-one"h3 class="related-content-title"Also In Housing Market/h3ul/ul/div')); $('.related-content ul').append($relatedItems); } },500); } Next In Housing Market Virgin Atlantic signs $4.4 billion order for 12 A350s FARNBOROUGH, England Virgin Atlantic signed a deal on Monday to buy 12 Airbus A350-1000 aircraft in a $4.4 billion order which will help the UK-based airline modernize its fleet, though a plan to buy A380 superjumbos remained on the backburner. U.S. must speed up arms sale to show export reforms are real: Pentagon FARNBOROUGH, England The U.S. government must complete work on several specific foreign arms sales requests to demonstrate its efforts to accelerate the pace and predictability of the export process, the Pentagon's chief weapons buyer said. Pentagon unveils new cost-cutting initiatives for F-35 fighter jet FARNBOROUGH, England The U.S. Defense Department on Monday extended by two years a project that has cut the cost of Lockheed Martin Corp's F-35 fighter plane by more than $1 million per jet, and kicked off a similar project to cut operating and maintenance costs. MORE FROM REUTERS window._taboola = window._taboola || []; _taboola.push({ mode: 'organic-thumbnails-a', container: 'taboola-recirc', placement: 'Below Article Thumbnails - Organic', target_type: 'mix' }); Sponsored Content @media(max-this site) { #mod-bizdev-dianomi{ height: 320px; } } From Around the Web Promoted by Taboola window._taboola = window._taboola || []; _taboola.push( { mode: 'thumbnails-3X2', container: 'taboola-below-article-thumbnails', placement: 'Below Article Thumbnails', target_type: 'mix' } ); window._taboola = window._taboola || []; _taboola.push

Money markets bank reliance on ecb rises; eu summit eyed


* Bank demand for ECB loans up 4 times on a month ago* Demand seen sturdy for Wednesday's 3-month loansBy Emelia Sithole-Matarise and Marc JonesLONDON/FRANKFURT, June 26 Bank borrowing from the European Central Bank soared on Tuesday, rising more than fourfold since last month in the latest sign that the euro zone's intractable debt crisis is driving up reliance on the ECB's seven-day loans. The rise in demand came as Cyprus became the fifth euro zone state to seek a bailout after Spain - bearing the brunt of the latest debt turmoil - formally applied on Monday to access rescue funds for its struggling banks. Spanish banks faced further pressure after Moody's cut their credit ratings on Monday in a widely expected move after it downgraded the sovereign rating in mid-June. About 180 billion euros was taken up by 105 banks at the ECB's regular offering of seven-day loans on Tuesday, well above expectations and more than four times more than a month ago. The crisis, now in its third year, has choked off bank-to-bank lending.

Only the safest banks in core parts of the bloc are still able to borrow on the open markets, leaving those in Spain, Italy and other countries with outsized debt burdens increasingly reliant on the ECB for their funding. Analysts see little impetus for improved market confidence from a European Union summit later this week, with a quick move towards a banking union or issuance of common euro zone bonds looking increasingly unlikely."In recent months we've moved from dislocated money markets in the euro zone to completely fragmented markets as certain areas have been completely cut off from normal market activity and have become increasingly reliant on the ECB," said Lena Komileva, managing director at G+ Economics.

"The credit downgrades have exacerbated uncertainty about credit risk together with lack of confidence in the ability of EU leaders to find a unified approach of building a banking union."WINDOW DRESSING

This week's demand from banks was higher than the 167 billion euros 101 banks borrowed from the ECB a week ago, well above the 169 billion expected to be taken and far exceeding the 38 billion euros that 84 banks took at the equivalent operation a month ago. Some analysts said the rise could also be due to banks seeking to spruce up their books towards the end of the first half of the year, and were looking to see how much lenders would take up of the ECB's 3-month loans on Wednesday."I would imagine banks would be keen to get some of this longer-term funding on their books," said Simon Smith, chief economist at FxPro. "There maybe some who hold back on the assumption that the ECB may move on rates but... when rates are so low and longer-term ones are done on an average of policy rates over the life of the loan, that effect is marginal."The rising demand for ECB funding is likely to concern the central bank, which has pumped over a trillion euros of 3-year cash into the banking system since the end of December, a move it could have expected to satisfy banks' needs comfortably. It is now lending banks double what it was just six months ago. Reuters calculations show 737 billion euros of excess cash in the euro zone banking system. However, crisis tensions are prompting banks to hoard the money rather than lend it on. Over 750 billion was parked back at the ECB overnight.