Feb 9 A small flurry of sterling issuers have
secured more attractive terms on their leveraged loans in recent
weeks, driven by red-hot investor demand heightened by a lack of
supply -- all against the background of an uncertain political
backdrop as Britain prepares to leave the European Union.
The success of the small wave of deals comes as demand
outpaces supply in the European market, prompting an ongoing
repricing of euro-denominated loans and making the yield on
sterling more attractive to investors. The loans have also been
viewed as relatively immune to Brexit-related risks.
The sterling deals include a large buyout financing for
British holiday park operator Parkdean, a sterling tranche for
Belgian aluminium systems manufacturer Corialis and a string of
repricings for UK and Ireland-based cable operator Virgin Media,
UK online sports betting and gaming company Sky Bet and US
nutritional supplements market Nature’s Bounty.
“They’re easy, really easy,” said one banker. “Virgin Media
was a walk in the park.”
Bankers deny there is any rush to bring sterling deals to
market before Britain triggers Article 50 and begins its formal
exit from the EU at the end of March.
“It’s not tied to Brexit in any way,” the first banker said.
“It’s tied to who wants to sit on sidelines watching a great
market go by and risk that the market changes for whatever
reason in the future.”
A second banker said that the timing was more about
borrowers trying to access the favourable terms on offer in the
market right now.
“I just can’t make that connection between Brexit and
sterling activity,” he said.
The sterling loans in the market have also not come from
sectors viewed as more vulnerable to Brexit and price inflation,
such as retail or restaurants.
“There hasn’t been anything with front and centre Brexit
risk,” a third banker said.
Parkdean was perceived as the biggest test of demand for a
large sterling buyout, yet investors flocked to the credit
partly as it is a potential beneficiary of Brexit should Brits
eschew holidays abroad due to the fall in the value of the pound
since the referendum.
“It’s a bit simplistic to say we’ll all be vacationing at
home and therefore it will do very well… but yes I think it’s
got the right defensive characteristics,” said one loan
The company reverse-flexed its £575m term loan B twice
during syndication, knocking the margin down 75bp to 425bp over
Libor from initial guidance of 500bp.
For now, sterling borrowers are benefiting from increased
demand as investors pour more money into loan strategies in the
search for yield.
“It’s total return funds, it’s managed money with lower
yield requirements, different swap requirements -- it’s anybody
but a structured vehicle like a CLO,” the first banker said.
CLOs drive demand for euro-denominated loans but face swap
costs for sterling deals and are therefore not significant
investors in the currency.
“There has been an increase in demand from non-CLO lenders,”
said the second banker. “They’re attracted to the asset class --
to term loans, not necessarily to sterling -- but they don’t
have the same swap requirements as CLOs so they’re more flexible
Sterling loans also still pay a premium over their European
counterparts – due to the lower levels of liquidity for the
currency – which has grown to around 100bp from 50bp-75bp since
Corialis, for instance, priced its euro term loan at 375bp
while its sterling tranche priced at 475bp.
Even well-liked liquid credits like Virgin Media, a Liberty
Global-owned business, priced at 350bp over Libor -- a 50bp
premium to its Dutch counterpart VodafoneZiggo’s recent euro
Overall yields on sterling deals will also be higher
compared to euro deals as sterling Libor is positive versus
However, a deal with more obvious risks related to Brexit
would potentially encounter more difficulty as investors weigh
up the impact on individual credits.
“ is very likely to crimp our economy and you want
to think carefully about what you’re going into for the long
term,” said the loan investor. “Your fundamental risk awareness
Yet with the political process still unfolding, the ultimate
impact on UK businesses remains unclear.
“There’s theoretical headwinds in the market because of
Brexit, you can’t ignore that, but I don’t think anyone can size
or put a number on it, or say what’s going to happen,” the first
“It’s a breeze in the background which may become a gale -
or may just blow away.”
(Editing by Christopher Mangham)