Baseline 2020 view:
- We expect new-issue loan pricing to remain in the medium-term range, +350-450bps over Euribor. There may be occasional wobbles in wider financial markets – that could filter through to the loan market and create short-lived secondary opportunities – but only a protracted period of macro-economic difficulty would materially affect issuance and primary pricing. High running income should continue to provide key support to loans.
- We anticipate loan issuance in the range of €80 to €100 billion (in gross terms) this year. The European loan pipeline started the year at over €15 billion, spread across more than a dozen names.
- There were a number of take-private deals last year, a trend that could well persist in 2020, such is the size of the dry powder of sponsors.
- Demand should remain strong but not excessive. We expect issuance in the CLO market to be slightly lower than 2019, at €25 billion, as the arbitrage is somewhat stretched, with loan margins at the tighter end of their range and as due diligence requirements of investors mount. Institutional flows should remain steady, attracted by high running income yet moderated by the end-of-cycle credit environment.
The value of investments will fluctuate, which will cause prices to fall as well as rise and investors may not get back the original amount they invested.