Count down: high interest rates squeeze companies with EUR 428bn to refinance by 2025
2nd June 2023
The European leveraged market has a hefty EUR 428bn to be refinanced in the next two-and-a-half years, according to Debtwire data.
This vast amount is putting pressure on borrowers, who are likely to have to refinance debts at rates considerably higher than they originally were. The Eurozone rate for refinancing operations is currently 3.75%, its highest point since 2008, and professional forecasters surveyed by the European Central Bank predict it remaining above 3% until 2025. The case is similar to the Euribor rate, currently at 3.2%, used in floating-rate operations and as a benchmark for fixed-rate offerings.
This scenario is significantly changed from when these high-yield (HY) bonds and institutional term loans were launched. Between 2015 and 2022, the Euribor rate was always below 0%.
Debtwire data also shows the maturity wall peaking in 2026 and 2028, mainly thanks to the expiration of term-loan facilities. TLB volumes coming to maturity in these two years stand at EUR 125.9bn and EUR 178.3bn, respectively.
Considering TLB facilities commonly have a seven-year maturity, a significant part of these deals was printed right before and in the aftermath of the coronavirus (COVID‑19) pandemic, when key ECB interest rates were at 0%.
Analysis of the use of proceeds of deals helps to understand what lies ahead. Debt raised to refinance existing facilities is by far the main use of bonds and loans with maturities up to 2028, accounting for between one-third and half of total outstanding debt each year.
This is followed by leverage buyouts (LBOs), which are prevalent in those deals with maturities further down the line, starting with only 14.5% in 2023, but reaching 31.1% on deals with maturity in 2028. The peak comes seven years after the post-pandemic boom in LBOs, when EUR 82bn was raised following the release of pent-up demand for private-equity acquisitions in 2021.
Data show that issuers of LBO debt are less exposed to near-term maturities. Some EUR 32bn of LBO deals are due to expire over the next six quarters. However, this is less than each of the next four years. In 2028, the LBO volume to mature reaches an eye-watering EUR 81.3bn.