Record collateralized loan obligation demand drives loan spreads to nine-year lows, pressuring investor tolerance amid thin supply.
European loan spreads have narrowed to their tightest levels since 2017, fueled by record demand for collateralized loan obligations outpacing supply. Borrowers are aggressively reducing debt costs as repricing and new-money spreads converge, testing investor limits ahead of the late-summer lull in issuance.
Recent repricing efforts, such as CVC-backed Mehiläinen’s €1.86 billion term loan cut to E+300 from initial E+300-325 talk, highlight the trend. While some B2/B rated borrowers aimed for E+275, the market settled at the wider end, reflecting resistance. Roll rates for Mehiläinen reached 99%, with spare paper allocated to new accounts willing to accept tighter terms.
The repricing wave accelerated in late May, with B/B2 rated borrowers like Colosseum Dental hitting the E+300 benchmark. Unlike January, when margins could be slashed more aggressively, current conditions leave little room to push beyond this level, with only Ivirma matching January’s E+275 tight set by Nord Anglia.