End of quarter is nigh

Dire first-quarter data will surprise no one, but figures from Thomson Financial show a near total wipe-out of primary activity, crystallising the impact of last year’s credit crunch.

In the words of one high-yield bond trader: “It’s not about league tables anymore, it’s about survival.”

European sponsored loans total just US$3.1bn in the first quarter, according to Thomson Financial data, a massive decline in activity from the same period in 2007 when it reached an all-time high of US$115.4bn.

The situation in the high-yield market is even more stark. European high-yield issuance has simply not been a part of the market for any of the last three quarters.

Christopher Day, head of leveraged finance at Commerzbank Corporates and Markets, insists the outlook is not all gloom: “The market has slowed but there is a pipeline of mid-cap deals, and there will be large deals done in Europe. The industrial rationale for the LBO industry is still there.”

He says the deals closed over the past quarter are those which reflect the new reality.

“Syndication in the current market must be done with a club deal mentality, even where there is a 50% or 100% underwrite,” he said. “Arrangers also need to deploy traditional banking skills – really knowing the underlying business and selecting the appropriate syndication strategy for each deal, whether that is targeting relationship banks and/or the respective local bank market.”

Across much of the market banks remain constrained by the overhang of pre-crunch deals. The selldown of parts of those deals remains a focus of activity, a tough, slow slog with little promise of reward.

One syndicate official said: “Talks continue on selling down the overhang. We have done some recent block trades and have some larger selldowns on the horizon. To date interest has come from some of the larger hedge funds, while sponsor-affiliated funds are interested in doing bigger deals.”