December 2012, European Leveraged Loan Market Analysis

European Leveraged Finance Market UpdateDecember, 2012

Sucheet Gupte - Director

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European Market TrendsText

• Secondary markets are up: Loan markets went up 48 bps to finish the month at 96.83 High-yield markets are up 84 bps to finish the month at 100.81

• The S&P European Leveraged Loan Index (ELLI) finished the month up at 0.66% (till the week ending November 29th)

• Loan issuance shot up to €4.3 billion from €3.7 billion; HY issuance came down to €3.4 billion from €3.5 billion

• Estimated inflows into HY funds were €536 million for November, YTD through the end of November up to almost €6 billion

• Default rates stabilized during the month.

91

93

94

96

97

99

100

1/11 3/11 5/11 7/11 9/11 11/17 1/12 3/22 5/12 7/12 9/12 11/12

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European Loan Flow Name Prices

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Source: LCD - Leveraged Commentary & Data

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81

85

89

94

98

102

106

1/11 3/11 5/11 7/11 9/11 11/11 1/12 3/12 5/12 7/12 9/12 11/12

European HY Bond Flow Name Prices

Source: Bloomberg

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(2.0%)

(1.1%)

(0.2%)

0.7%

1.6%

2.5%

9/11 11/11 1/12 3/12 5/12 7/12 9/12 11/12

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ELLI Multi-Currency Loan Return

TextNovember 2012: + 0.66%October 2012: + 0.47%Jan-Nov 2012: + 8.7%Jan-Nov 2011: + 0.71%

Source: S&P European Leveraged Loan Index

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0

3

5

8

10

9/11 11/11 1/12 3/12 5/12 7/12 9/12 11/12

Volume: New-issue Loans vs. HY Bonds

HY bonds

Loans

€bill

ions

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€4.3B

€3.4B

Source: LCD - Leveraged Commentary & Data

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Historical Maturity Schedule by Par Outstanding

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Source: LCD - Leveraged Commentary & Data

0

12.5

25.0

37.5

50.0

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

YE 2009 YE 2010 YE 2011 Oct 2012

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Reasons for Reductions in Outstanding Loans

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Source: S&P European Leveraged Loan Index (ELLI)

2011 Share of Outstandings Jan-Sep 12 Share of

OutstandingsHY Takeouts 5.9 4% 2.9 3%Other Full Paydowns 26.9 20% 7.7 7%Other Partial Prepayments 6.0 5% 1.7 2%A-to-E 6.4 5% 10.9 10%Defaults/Restructurings 1.1 1% 5.2 5%

46.3 35% 28.5 25%

Source: S&P European Leveraged Loan Index (ELLI)

Reductions from Outstanding Loans (€B)

0%

3%

6%

10%

13%

16%

2/09 2/10 2/11 11/120%

3%

6%

10%

13%

16%

2/09 3/10 4/11 11/12

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ELLI Default Rates – European Leveraged LoansDefault Rate by Principal Amount Default Rate by Issuer Count

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Source: LCD - Leveraged Commentary & Data

Themes to watch forText

• Bond-for-loan takeouts will continue to keep pace

• Peripheral issuers continue to access the high yield markets

• No significant changes to the quantative easing policies from the ECB

• Flurry of activity before year-end; otherwise deals getting pushed into the new year

• Issuers will seek ‘add-on’ facilities instead of whole new facilities for their needs

• European issuers increasingly go across the ‘pond’ to the US, to issue loans and bonds

• Sell-side bankers and sponsors optimistic about M&A activity during 1Q of 2013

• Loss of CLOs: almost 85% of CLOs will be past reinvestment periods by end of 2013

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