DBRS Morningstar Releases Commentary on the Impact of COVID-19 on Leveraged Loans, Direct Lending, and CLOs in Europe

DBRS Morningstar released a commentary titled, “The Impact of COVID-19 on Leveraged Loans, Direct Lending, and CLOs in Europe”.

In this commentary, we provide a snapshot of H1 2020 leveraged loans, direct lending, and collateralised loan obligations (CLOs) market developments pre- and post-Coronavirus Disease (COVID-19) pandemic.

At YE2019, the European leveraged finance market was predicted to have an overall stable and relatively positive year in 2020. Although European economic growth was predicted to remain slightly sluggish in 2020, strong labour markets and accommodative monetary policy meant household and corporate finances were likely to remain resilient. In leveraged finance, the year started with a flurry of deals compared with the subdued start to 2019. The direct lending market, prior to the pandemic, was expected to continue to grow and keep up its strong run of deal-making and fundraising. Demand was resilient from new managers to fund new CLOs while default rates for sub-investment-grade corporates were predicted to be higher than in 2019 but still low by historical data.

This commentary explores how the coronavirus pandemic abruptly changed these scenarios.

Some highlights include discussion surrounding:
--Leveraged loans main indexes corrections in Q2 2020;
--Downgrades and higher levels of low-rated loans within European CLOs;
--Volumes decline in direct lending fundraising;
--Increasing levels of defaults in the leveraged loan, direct lending, and CLOs markets post-coronavirus; and
--Possible market developments.

This commentary is available at www.dbrsmorningstar.com. For more information, visit www.dbrsmorningstar.com or contact us at [email protected].

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