EMEA Primary 2023 Review & 2024 Preview
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Refis Dominate 2023 Primary Issuance, LBOs Creep In; Looming 2025, 2026 Maturity Wall to Drive 2024 Volumes; PEs Keen to Deliver Returns but LBO-Driven Issuance May Still Struggle
Next year, primary market activity is expected to increase in relation to this year, although volumes are likely to remain historically low with net issuance still subdued, market participants believe. The first half of this year was dominated by loan issuers terming out their maturities via amend-and-extend transactions, with some new issuance creeping back into the market after the summer. One driver for activity in 2024 will be outstanding 2025 and 2026 maturities, which will be addressed as issuers increasingly accept that higher interest rates may be in place longer than previously expected, sources said. However, although there is pressure on private equity to deliver a return on investments and the gap between expectations between buyers and sellers seems to be closing, a limited deal pipeline reveals that LBO and M&A financing activity may struggle to increase next year, market observers said.
Increasing macroeconomic confidence is making issuers more willing to raise new debt, sources noted. The economic outlook is starting to look more predictable and more benign, said Ben Thompson, JPMorgan’s head of EMEA leveraged finance capital markets. The market is trading as if there’s more consensus about a band of outcomes, as opposed to significant uncertainty about interest rates, inflation, and GDP, he added.
Others agree that while growth may be limited in the near term, particularly in Europe, a deep recession is looking less likely than it may have done a few months ago. We expect European growth to continue to struggle in the first half of the year thanks to the continued fallout from rapid ECB rate hikes, but a recession to remain shallow, a report from Deutsche Bank states.
The sharp downturn that was expected to happen has not materialized, one buy-sider commented. Instead, the market has adjusted to current conditions and higher interest rates. First-quarter results for leveraged finance issuers are unlikely to reflect significant economic pressure, which is reassuring for the primary market, although there may still be some macroeconomic noise related to the U.S. presidential elections next year and – importantly – some residual uncertainty until the exact timing and extent of interest rate cuts across major economies becomes clearer, he commented.
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