PB: 2024 European Loan Outlook – M&A holds key to volume, with returns set to cool

PITCHBOOK‘s David Cox writes:

European loans have defied the naysayers, and are on course in 2023 to deliver their second-best year of returns this century. Few participants, though, think this feat can be repeated in 2024, as the market — according to analysts’ year-end predictions — continues to grapple with low new-money supply on limited M&A activity, and defaults that are increasingly moving back up to long-run averages. 

In what has been a strong run into year-end, European loans are set to record their highest yearly return since the aftermath of the GFC in 2009, at roughly 12.6% (ex-currency) by Dec. 14. This result makes the asset class one of the best-performing liquid investments globally, and comes despite predictions at the start of the year of no more than a muted return after the market dislocation in 2022.

“People started the year worried that companies would struggle to pass on price increases resulting from inflation,” said one manager, adding that sponsor names were generally able to offset pressures to cashflow with price rises or cost savings.

The strong year took the average bid in the Morningstar European Leveraged Loan Index (ELLI) from 91.34 through to a high of 96.69 in September, and it looks to be on course to settle in a high-95 context by year-end, closing at 95.76 on Dec. 14…

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