Bloomberg News

European Loan Prices Supported by 5 Billion Euros of Repayments

October 03, 2011

Oct. 3 (Bloomberg) -- Investors in European leveraged loans received 5 billion euros ($6.6 billion) from repayments in the last week of September, eclipsing the total returned the previous month and lifting prices in the secondary market.

Nycomed ASA, a Swiss drugmaker acquired by Takeda Pharmaceutical Co., repaid 4.2 billion euros of senior loans last week, according to a person with knowledge of the deal who declined to be identified because the information is private. Com Hem AB redeemed about 1.4 billion euros of loans after the Swedish cable company’s takeover by BC Partners Ltd. in July, a banker involved in the deal said.

“Inevitably, repayments will provide some support for the secondary market,” said David Milward, the London-based head of loans at fund manager Henderson Global Investors Ltd. “We saw the prices of some loans increase two or three points following the formal announcement that Nycomed will repay.”

The average bid price for actively-traded European leveraged loans rose 25 basis points to 92.66 percent of face value in the week ending Sept. 29, after falling 572 basis points over the previous three months, according to Standard & Poor’s Leveraged Commentary & Data.

European leveraged loans have outperformed their junk bond counterparts in the year to Sept. 22, losing 1.42 percent compared with a decline of 2.2 percent for bonds, according to Credit Suisse’s European Leveraged Loan and High Yield Bond Indexes. The debt recorded positive returns for the first five months of the year before the region’s deepening sovereign crisis curbed appetite for riskier assets, the data show.

Phadia, ProSieben

Investors in loans received 2.1 billion euros of repayments in August after the takeover of Phadia AB, a Swedish maker of allergy and autoimmunity diagnostic technology and ProSiebenSat.1 Media AG sold assets. ProSieben, a German broadcaster controlled by KKR & Co. and Permira Advisers LLP, repaid 1.2 billion euros of debt after selling its Dutch and Belgian cable assets in April. Phadia redeemed 920 million euros of loans after its purchase by Thermo Fisher Scientific Inc. from Cinven Ltd. in May, according to Henderson.

In the first quarter 9.7 billion euros were returned to the market, followed by 11.8 billion euros in the second, according to S&P LCD. Promivi, an animal-feed additives company sold to Cargill Inc. by Permira in August, is expected to repay as much as 900 million euros of loans in the fourth quarter, Henderson said.

Tackling Refinancing Wall

Leveraged loans are typically used to fund buyouts. Private-equity firms take the debt in the name of the acquired company, triggering a downgrade in the target’s rating to junk, or below Baa3 by Moody’s Investors Service and BBB- by S&P.

The repayments may provide a fillup for private-equity owned companies that must refinance 200 billion euros due between 2012 and 2014. These businesses have been left in “operational limbo” as volatile markets cut off refinancing avenues, Fitch Ratings said in a report Sept. 28.

Securitas Direct AB and Coditel Holding SA struggled to refinance temporary bridge loans as the high-yield bond market soured after their buyouts. European high-yield funds saw a weekly outflow of $1.49 billion, or 2.3 percent of assets, Bank of America Merrill Lynch said on Sept. 30, the ninth-consecutive week of net withdrawals.

“The borrowers of secured loans won’t just be sat back waiting for the refinancing wall to arrive,” Henderson’s Milward said. “Borrowers will need to act ahead of that. CLO investors will need to redeploy redemptions into the secondary market, and will also be looking at some of the new transactions as well.”

--Editors: Cecile Gutscher, Faris Khan

To contact the reporter on this story: Stephen Morris in London at smorris39@bloomberg.net.

To contact the editor responsible for this story: Faris Khan at fkhan33@bloomberg.net.


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