Spanish leveraged loan issuance had already reached US$19.2 billion across 39 deals as of Q3 2019. This surpassed the 2018 total of U$S14.4 billion and the US$17.7 billion seen in 2017, with time to spare.
This strong performance reflects the fact that Spain accounted for 12% of total European issuance by the end of Q3 2019, with only the UK, France and Germany posting higher value and volume numbers in the same period, according to data from Debtwire Par.
Larger deals—including a US$2 billion restructuring issue for supermarket cooperative Eroski—account for a large percentage of issuance as of Q3, but activity in the mid-market overall remains healthy. In addition, Parques Reunidos, the theme park operator backed by EQT,Corporación Financiera Alba and GBL recently closed a US$1.1 billion institutional loan, which will add to a significant tally for the year.
Direct lenders and banks join forces
The emergence of direct lenders and their willingness to team up with banks to finance smaller mid-market deals has supported these higher volumes. Larger credits of US$550 million or more remain the preserve of the large banks or international funds, but for credits below US$220 million, many funds and banks are teaming up to take on different parts of the capital structure. Structures are flexible, with banks taking the super-senior and term loan A pieces and the funds taking the term loan B and subordinated debt tranches.
This cooperation allows banks and funds to underwrite more credits and reduces the cost of capital for borrowers. As new debt funds continue to enter the market, debt offerings are likely to become more bespoke and sophisticated, supporting an ongoing rise in issuance.
Pricing in Spain catches up
The growth and diversity of the lender universe demonstrates the steps Spain has taken to reform its insolvency regime and strike a better balance between creditor and debtor priorities following the financial crisis.
The market has also matured since the credit crunch, when it suffered wide pricing spreads with other European jurisdictions. Spain is now much more closely aligned with the rest of the continent. As of Q3 2019, according to Debtwire Par data, Spanish institutional loans have priced at an average of 411 basis points (bps), versus 397 bps in the UK and 409 bps in France and Germany. Compare this to 2014 when Spanish loan pricing was at 389 bps versus 424 bps in the UK, 410 bps in France and 416 bps in Germany.
Deals like KKR’s backing of pizza chain Telepizza provide further evidence of the capability that has emerged in the Spanish market. Telepizza was taken private by KKR earlier this year in a US$667.5 million deal. The transaction used bridge financing facility to secure the deal and then tapped the bond market to arrange a high yield bond to take out the bridge loan. According to Debtwire Par, the US$370 million bond was priced at 6.25%. The ability of lenders and advisers to put together a unique structure combining a public-to-private with a bridge facility and high yield bond shows how far the market has come.
The Spanish market also landed a European first when telecoms operator MásMóvil raised a US$110.5 million revolving credit facility and US$165.8 million CapEx line package, alongside a US$1.6 billion term loan B that was the first leveraged loan for a European borrower to include ESG criteria.
The Spanish market is well-positioned
Although Spanish issuance could be adversely affected by the recent general election, Brexit and a slowdown in German economic growth, the outlook for 2020 is positive, with a number of deals set to come to market. Airline operator IAG’s US$1.11 billion acquisition of Air Europa is set to seek financing in the first half of 2020. Debtwire Par also expects Prisa to come to market in the same period and Ferrovial Servicios is currently in its final round.
This strong pipeline of deals positions the Spanish market to carry the momentum built through 2019 into the New Year.