When looking at outstanding term loan debt in the European leveraged loan market, margins have shifted wider over the last two years, despite the recent bout of tighter loan pricing.

The European leveraged loan market has grown in recent years with outstanding term loan debt now topping EUR 260bn, up from EUR 195bn two years ago. But despite the larger market, the volume of loans in the sub-350bps margin category has held relatively steady, while in contrast the 350bps to <450bps segment has seen outstanding debt roughly double to EUR 51bn. At the upper end of the market, there has also been a jump in loans with a margin of 450bps or greater, with the volume of loans in this category climbing to EUR 57bnfrom EUR 33bn.

Primary market loan pricing has tightened this year in the face of robust demand and limited new supply, with the average marginfor firstlien institutional loans declining to 299bps in 1Q20 from 324ps in 4Q19. But with institutional loan volume only at EUR 14.2 (excluding refinancingsand repricings) this quarter, it has not been enough to significantly change the outstanding debt picture.

Despite the wider margins on offer for loans over the last two years, this has been counter-balanced by a similar widening in liability spreads across the capital stack during this time period, putting pressure on the CLO arbitrage.

Colm (C.J.) Doherty Global Head of Primary Market Analysis Debtwire

Colm Doherty is Debtwire’s Global Head of Primary Market Analysis. He is responsible for leading the production of primary market analysis and reports focused on the leveraged loan and high yield bond markets. Prior to joining Debtwire, Colm was Director of Analysis at Thomson Reuters LPC covering leveraged loans, CLOs and high yield bonds.

Colm has a B.A. in Economics & Legal Science from National University of Ireland Galway and an MSc. in Accounting & Finance from Ulster University.