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The aim of our quarterly reports is to provide our clients with an overview of certain market trends in the European syndicated leverage loan market, and how they have evolved, by looking at a selection of key terms commonly found in a Senior Facilities Agreement. From time to time, we will update the key terms contained in these reports to reflect the ever-changing nature of the market.
This report refers to data drawn from Debt Explained’s Representative Loan Terms (RLT) database which tracks information from syndicated deals in the European leverage loan market. We have based this report on those European deals that were in the market from 1 June 2017 to 30 June 2018, as indicated, and which were reviewed by Debt Explained during that period. Unless otherwise stated, no distinction has been made in this report between those European deals governed by the law of England and Wales, the law of another European jurisdiction or New York law.
Covenant Package Type
All deals reviewed by Debt Explained in the second quarter were on a Cov Lite basis.
MFN Protection: is it present and, if so, at what level?
All Q2 deals included MFN protection and, positively, there was a small increase in the proportion of deals setting the cap at 0.5%. However, for deals with 1% protection, the weaker margin caps were seen slightly more frequently than yield caps.
MFN protection continues to be an area for negotiation, with over half of Q2 deals including some kind of limitation on its application, whether in the form of a currency or maturity limitation, by allowing an amount of incremental debt to be incurred with no protection or otherwise.
|Q3 2017||Q4 2017||Q1 2018||Q2 2018|
|No MFN protection||-||5.5%||-||-|
|Yes – 0.5% - yield cap||19%||5.5%||15%||29%|
|Yes – 0.5% - margin cap||-||-||8%||-|
Yes – 0.75% - yield cap
|Yes – 1% - yield cap||62%||50%||46%||29%|
|Yes – 1% - margin cap||14%||28%||23%||35%|
|Yes - 1.5% yield cap||-||5.5%||-||-|
|Yes – different % depending on currency – yield cap||5%||-||-||-|
|Yes – different % depending on maturity date – margin cap||-||-||8%||7%|
Springing leverage covenants: testing threshold
Q2 saw the appearance of both 50% and 67.5% as a testing threshold but the standard remains 40% (with some nuances).
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About Debt Explained
Debt Explained’s Market Maker and Representative Loan Terms (RLT) databases offer unique oversight of the European high-yield bond and leveraged loan markets, with more than 550 and 250 searchable terms respectively. A staple resource for all leveraged finance market participants – including capital markets bankers, legal advisors and asset managers – Debt Explained data reacts to the market in real time: subscribers receive detailed deal snapshots on new issues as information is released.
Debt Explained was founded by Stephen Mostyn-Williams in 2009, a Senior Partner at four international law firms and the co-founder of the European High Yield Association, now AFME. We are staffed by experts in leveraged finance with extensive experience in Capital Markets and Banking & Finance. All have deep knowledge of our product areas.
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