Europe

Deoleo is a Spanish olive oil company that people will know from its brands like Bertolli. It’s long been considered to be one of the “idiosyncratic” stories in the European leverage loan market. The deal has an 85m revolver, a 55m second lien tranche and widely traded 460m senior secured tranche.

he first quarter of 2019 is coming to an end and after a bumpy end to 2018 we did not expect to see a lot of issuance of new CLOs once the pipeline had cleared. But although CLO debt remains expensive for equity investors (arbitrage has only gotten worse as the leverage loan supply is still slow) there seems to be no end to new deals coming to the market. There are a few things that for us as debt investors stood out; the strong Japanese bid for AAAs, structural differences, varied pricing and spreads that have not recovered as quickly as for similarly rated corporate bonds.

The big monetary policy event over the month was the increase of monetary stimulus announced by the ECB after two years of slowly weaning the Eurozone off extremely easy money. At the ECB meeting of Thursday the 7th of March Mario Draghi announced the introduction of new TLTRO (the last round ended in December 2018, so this is TLTRO III) and interest rates guidance was modified for the current levels to remain to the end of 2019 (previously mid 2019). Market consensus is for an even longer pause.

One of the elements we look at on our dashboard that guides us on the state of the economic cycle is credit rating migration. We look at spread movements too, but rating change gives us another line into the risk that rated entities are taking or are confronted with. While we recognise that rating change is a backward looking indicator, viewed in conjunction with other measures, it is possible to draw some important conclusions.

Investors have rightly been concerned about the coordinated global economic slowdown, but in Europe it has been worse than that with the major economies flirting with recession. Consequently investors have been cautious on European assets, but has this caution now reached its peak?

The big news yesterday came from Santander, when the Spanish lender finally announced, just a few minutes before the deadline expired, that it wouldn’t be calling its 6.25% AT1 on the first call date of March 12.

After a volatile end to 2018 the European high yield market has started 2019 on the front foot, with the yield on the Euro HY Corporate Index tightening by 60bp to 4.16% since the start of the year.

January has been a very quiet month for the European CLO market, with spreads tightening but still relatively wide. While we know there are around 30 different CLO warehouses open – some of which are for deals that couldn’t be priced in December and were postponed – the pipeline is struggling to materialise. So far only CSAM has managed to price a new deal, and in the process showed how difficult it has become to make the arbitrage to work for equity investors (see our recent blog CLO Arbitrage Worst Since 2013).

We woke today to the ironic news that on the same morning that Greece struck a deal with Eurozone authorities to ease its repayment obligations, another borrower, who also manged to ease its obligations a few years ago, has now decided to return to the markets with a new issue.

On Tuesday 27th March 2018, The European Commission will be holding a Public Hearing to discuss the 2018 Review of Solvency II Implementing Measures. The Solvency II Directive is the regulatory framework for the insurance industry introduced in 2016, which is now approaching its first review.

We are not in the habit of writing when a lot of our readers are on holiday, however we know many of you still follow events closely even while off, and we felt this event was particularly newsworthy.

TwentyFour will be entering into a strategic partnership with Vontobel Asset Management (“Vontobel”), the multi-boutique asset manager and subsidiary of the Vontobel Group.