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Credit funds - Leveraged loan market

Just wondering if anyone can give me info on the following: What is the general European leveraged loan market like? There have been several regulations after the crisis like Basel III etc. how have these regulations affected the leveraged loan market in Europe? Thanks!
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Bb^
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Original post by awwar212
Just wondering if anyone can give me info on the following: What is the general European leveraged loan market like? There have been several regulations after the crisis like Basel III etc. how have these regulations affected the leveraged loan market in Europe? Thanks!


The European market is a very bank-led market (unlike the US which is institution-led i.e. CLOs play an active part on the buy side). About 60% of loans were traditionally held by European banks vs. CLOs and other institutionals.

This is now changing - Basel 2.5 and 3 mean that banks are being forced to raise equity capital and so are lending less as a result. In addition, leveraged loans are now considered "riskier" assets and so require more capital to be held against them on balance sheet; the net result is that while banks still want to arrange financings, they're now keeping EUR 20-30m on balance sheet vs. EUR 100m+ pre-crisis, and are trying to syndicate the rest.

The other side of the coin is that CLOs are rapidly expiring in Europe and there's limited new formation - the 122A directive means that CLO managers now have to hold a strip of the equity in the CLOs themselves which makes CLOs much more expensive to create - the collapse of CLO demand for loans is significant.

A handful of private debt / HF lenders are active in Europe and are plugging the gap but it's a big gap to plug. As a result, although spreads have tightened in the past year, they're tightening faster in the US, and around fewer covenants, than in Europe.

Hope that helps.

Bb^

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