Junk Loan Deals Are Now Getting Pulled on Both Sides of Atlantic

(Bloomberg) — Companies in both Europe and the US are shelving plans to tap the riskiest corner of the loan market after US President Donald Trump’s trade wars triggered economic uncertainty.

UK production company All3Media and French insurance broker April Group last week withdrew proposals to reprice existing leveraged loans in Europe, according to people familiar with the matter. Crop-protection company Rovensa pulled a planned €1.1 billion ($1.2 billion) loan refinancing and extension. 

The withdrawn deals are the first signs of souring sentiment among Europe’s leveraged loan market this year, and follow a spate of pulled transactions in the US as tariffs undermine a previously insatiable demand for credit. 

Robust inflows into credit funds — combined with a lack of new loans — had led to a feeding frenzy in M&A-starved leveraged loan markets. With a deluge of investor cash chasing too few deals, companies had been able to slash pricing on their existing debt. 

But now the volatility is allowing investors to push back on private equity-owned borrowers — and demand extra compensation to finance deals.

The average margin for new issue leveraged loans was 323 basis points over the benchmark last week, according to the latest data compiled by Bloomberg. That compares with 287 basis points over the benchmark in late January.

European leveraged loans on Friday saw the largest one-day drop in secondary pricing since October 2023, according to Morningstar’s European Leveraged Loan Index. In the US, prices in the secondary market have fallen to levels last seen in August.

Among the handful of US offerings pulled from syndication in recent weeks was a leveraged loan sale for Pursuit Aerospace on Friday. 

The deal had been intended to refinance existing private debt and support an acquisition, with Golub Capital having previously priced a private loan at 650 basis points above the benchmark rate. Banks led by JPMorgan Chase & Co. were attempting to refinance the private loan at 375 basis points over the benchmark, according to people with knowledge of the matter.

“Because of the uncertainty, it can be hard to have conviction to sell a business and get the value you hoped,” said Rob Fullerton, global head of leveraged finance at Jefferies.

To be sure, it’s not all doom and gloom. About a third of the launches last week involved acquisitions, a welcome change given the preponderance of repricings over the past year. 

On Friday Apollo Global Management Inc.-owned packaging company Novolex Holdings LLC began an almost $3 billion financing to support its purchase of rival Pactiv Evergreen Inc. And Avalara, a Vista Equity Partners-owned tax-software company, is poised to save as much as $90 million in annual interest by refinancing $2.5 billion of private debt via the leveraged loan market.

But these deals don’t alter the current shift in credit market dynamics. 

Pricing widened on recent deals from SolarWinds, TripAdvisor and Alltech, and analysts at firms including Barclays Plc and Goldman Sachs Group Inc. raised their forecasts for spreads on US credit. The Barclays forecast reflects a roughly 20% risk of recession, the analysts wrote, compared to the less than 5% risk priced in by spreads.

The percentage of US leveraged loans trading above par is at a 13-month low 10.7%, according to JPMorgan analysts, down from 33.8% on March 1.

The drop in prices is hitting primary issuance. So far this Monday — typically the busiest day for launches — only two new US leveraged loans have come to market as investors turn their attention toward picking up bargains in the secondary market.

–With assistance from Aaron Weinman.

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