Leveraged loan prices hit European lows

Published: December 22 2008 16:31 Last updated: December 22 2008 16:31European leveraged loan prices have fallen to record lows as confidence in the market deteriorates further because of the bleak economic outlook.The average bid price of European leveraged loans hit 60.70 cents last week, well below par value of 100, according to Standard & Poor’s LCD. Bankers say these prices are the lowest since the market first took off in the early 1990s.The fall – from 62.31 cents the previous week – is the biggest weekly decline since the end of October. The leveraged loans market has plunged since the middle of September when Lehman Brothers collapsed.Before Lehman’s demise, the average bid price was just below 90 cents. Immediately after the rescue of Bear Stearns in March, prices rose close to 95 cents at one point as confidence briefly re-turned to the market.In the US, the average bid price of leveraged loans in the secondary markets rose to 65.80 cents last week, up from 64.83 cents. This is the first time prices have risen in five weeks – though they are still around record lows.Bankers say the market is thin with many investors having closed their books before year-end, which may have pushed prices lower.One banker said: “No one is really buying at these levels. The banks are still in the middle of deleveraging and traditional funds, such as pension funds, are sitting on the sidelines and have done so since Lehman collapsed.With the economy expected to continue deteriorating, many more companies are likely to default on loans and bonds. S&P forecasts that more than 20 per cent of all European speculative-grade companies could default by the end of 2010 because of the recession.The agency estimates that at least 60 European companies will default within the next 12 months, affecting up to €25bn ($35bn) worth of debt, followed by a similar amount affected again in 2010, making it the worst period on record for Europe.