The new-issue volume of leveraged loans in Europe almost reached €80 billion in 2014, the highest level in seven years and an increase of 17% compared to 2013. Leveraged loans are loans provided to companies that, usually, already have considerable amounts of debt and they are generally associated with mergers and acquisitions as they provide the extra cash needed to facilitate a deal.
There is little doubt that alternative finance continues to be a very hot topic. While small and medium-sized enterprises (SMEs) and unrated borrowers continue to require credit, there is also evidence of increased liquidity from a new breed of alternative investors (particularly insurance companies and pension funds). Over the years the US private placement [USPP] market, which raises about $50 billion a year, has evolved to become an excellent source of alternative funding for European mid-sized corporates, particularly following the financial crisis. Although this is a positive development, the common perception among financial market players is that further development of a European private placement [PP] market is necessary.
The effects of the credit crisis on corporate funding options have often been discussed. The general message is that it has become much more difficult for companies to attract bank financing since the start of the crisis in 2008. This is mainly due to worldwide deleveraging by banks, fueled by new regulations such as Basel III. However, these developments have also created an interesting opportunity for European investment grade corporates.