Debt Crisis Deepens in Europe as Recession Looms

Deals in Europe are getting more difficult as deal makers struggle to find financing for corporate takeovers amidst fears that the economies of some countries will enter a recession. This has led debt investors to demand higher rewards offerings they’re making based off these high risks taken during negotiations, which can lead potential buyers or sellers hesitant because both sides may be afraid there won’t get paid back should things sour later down the road.

With global economic uncertainty at an all-time high and financial markets volatile as a result of the Russia-Ukraine war, coupled with monetary tightening from both the Federal Reserve and the Bank of England people have found it harder than ever before to get loans.

M&A in Europe has been on an upward trend since January, with more than double the volume of deals announced compared to this time last year. volumes were at their lowest point before pandemic hit – when they only reached $199 billion for all 2019 pre-pandemic windows combined. Not all banks are equally willing to take on debt. Some have had deals sweetened by the investor, but others may need more incentive before they will consider lending their funds.

“There is uncertainty in this market right now,” said Anthony Diamandidis from Citi’s Asset Managers franchise worldwide team.”Investors will be careful until these issues settle out and there becomes less of an opportunity gap between Europe where bid prices seem high compared with asking ones which could cause them trouble when deciding where best to invest money. We are not seeing many new debt commitments at the moment because the M&A deal volume feels light.”

The global financial crisis has caused a major shake-up in corporate America, with interest rates on high yield bonds skyrocketing to new highs.

That’s bad news for companies who are struggling financially or will likely have trouble refinancing their existing debt anytime soon because it now costs them almost six times more than before due this year alone.

 However, some deal makers believe things may be turning around as M&A volumes remain depressed but not necessarily dead yet–so there is still hope that eventually, we’ll see an increase once again after all these years without any real progress made regarding merger agreements between US firms.

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The American private equity firm CVC Capital Partners agreed to buy the British supermarket chain Morrisons for £3.9 billion ($5 billion). The deal is still subject to regulatory approval, but if it goes through it would be one of the biggest retail acquisitions in Europe in recent years.

The use of leverage in corporate transactions has come under increased scrutiny since the financial crisis because it can be funded by loading a significant amount of debt onto an asset-heavy company. Junk bonds are often issued when this occurs, and they carry higher risks than other types due to their low-quality nature.

The practice has drawn criticism from those who believe that large institutions should not get preference over small ones during times where there’s been little economic growth or job creation across America as well as ongoing struggles within some segments/sectors such as healthcare providers which have experienced cutbacks resulting directly from the current state of the economy.

While European high yield retail funds are still seeing outflows, the amount of money fleeing this year’s market has been unprecedented. The head of EMEA leveraged finance at JPMorgan, Daniel Rudnicki said that a lot of high-yield investors have cash today but are worried about outflows. As long as this worry exists it will be difficult for them to price new deals. The global high yield bond market has seen a 77% decrease in issuance volumes this year, with European transactions down nearly 75%.

The European high yield market closed for 10 weeks following the launch of an 815 million pound bond sale in April by HSBC (HSBA.L) and Barclays to fund Apollo’s takeover of British home builder Miller Homes.

This long period without any activity has caused significant volatility within Europe’s banking system, especially since they rely heavily upon this money flow from investors who are seeking yields higher than those offered at current times.

The price of the sterling tranche was set lower than expected, with many banks offering higher yields to attract investors. HSBC declined to comment while Barclays and Apollo were not immediately available.

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