Out of approximately 400 European leveraged loan and high yield bond issuers backed by private equity sponsors in the Debtwire universe, 81 completed a debt restructuring between 2008 and 2010. These 81 issuers represented EUR 367bn of pre-restructured debt in Western Europe.
While a large share of LBO restructurings returned companies to sustainable footing, a number of 2010 workouts left most or all the issuers’ original debt in place, suggesting many could face a second round with creditors, according to Debtwire’s inaugural European Restructuring Report: Default, Restructuring and Recoveries in 2008-2010.
The subprime bubble burst in 2007 sparked a full meltdown of the financial markets and the collapse of Lehman Brothers in the autumn of 2008. Europe’s leveraged loan and high yield primary markets closed for business and economic derailment fuelled a contraction in corporate earnings.
The construction, automotive and manufacturing sectors initially felt the strain, as evaporating liquidity put pressure on covenants, and in many cases on companies’ ability to meet debt service payments, forcing a number of them to restructure their balance sheets.
Restructuring activity during the three years from 2008 through 2010 peaked in 2009, with Debtwire’s calculated default rate increasing to 13.9%.
“We saw gradual improvement in creditor sentiment in 2009 and 2010, which broadly impacted the terms of debt workouts," says Attila Takacs, Head of European Research at Debtwire and the author of the report. "Based on Debtwire’s report findings, restructured leveraged loans remain heavily indebted and reliant on broader improvements in the macroeconomic environment. A number of highly-indebted capital structures post-workout and large number of covenant amendments in 2009 and 2010 implies a potential return for these issuers in the restructuring cycle."
