UK debt volumes drop in Q2 as Brexit puts brakes on issuance

A total of €2.1bn of debt was issued in the three months from April to June in the UK, compared to €2.9bn in the same period last year. Volumes were also down compared to the first quarter of 2016 which came in at €2.5bn, according to the debt adviser. On the pricing side, overall debt margins in the UK margin rose to 550 basis points (bps) from 530bps as opinion polls pointed to the increased likelihood of Brexit.

European (including UK) leveraged loan volumes were 4% down at €16.4bn due to a 24% decrease in non-sponsored activity, but offset by 55% higher buyout volumes.

The market for UK sponsored activity is busy right now and, though there may not be as many deals launching in September as last year, it only takes a few for the market to regain confidence" - David Parker, Marlborough Partners

The uptick in European buyouts was notable as it was the result of strong domestic activity - with debt staying in Europe - compared to previous quarters in which US or cross-border deals plumped for a European syndication.

CLO volumes recovered the second quarter with a record post-crisis issuance of €4.6bn, slightly higher than the €4.5bn seen in the same period last year.

The high-yield market also revived in Q2 on the back of higher oil prices and as concerns over Chinese economic growth subdued. Volumes were more than twice as high as the first quarter of the year at €16.9bn compared to €7.1bn. Despite the jump, there were only four weighty sterling denominated bond issuances.

Keep on keeping on
Despite a few deals being pulled as a result of Brexit clauses being invoked and no deal deluge on the horizon, there appears to be strong support from both the UK sponsor and lending communities in getting deals done, the report concludes. This seems to tie in with preliminary figures for private equity in the immediate post-referendum timeframe in the UK: as reported by unquote" earlier this week, activity in July and early August was broadly comparable to last year's in the small- and mid-cap segments, although dealflow seems to have suffered above the £250m EV mark since 23 June.

Post-Brexit deals include Morrison Utility Services by First Reserve and Liberation Group by Caledonia. More recently, ECI Partners and Livingbridge sold their stakes in corporate travel business Reed & Mackay to Inflexion Private Equity, generating a 3.4x return on investment. LDC also invested £37.5m to support the £105m management buyout of ByBox, a British supply chain logistics company.

Also noted by Marlborough is the lack of revised 'post-Brexit' terms demanded by the UK banking community. Debt funds on the other hand - particularly those with continental European or US headquarters - have taken a more cautious, ‘wait and see' approach, according to the firm.

"The market for UK sponsored activity is busy right now and though there may not be as many deals launching in September as last year, since the brakes were put on some processes, it only takes a few for the market to regain confidence," says David Parker, managing partner at Marlborough. "The machine just needs to get going again, and there might be a gap until it does."

Further reading

• UK / Ireland

UK buyout activity continues apace despite Brexit vote

• 08 Aug 2016

• Financing

Comment: The shifting debt landscape

• 01 Apr 2016

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