Debt Explained has unveiled its latest European Loan Market Update covering Q2 2018. For the first time, the report shows that all deals were done 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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