Loan market rejects find a home in high-yield (AND "COVENANT-LITE" NOW STANDARD!!)

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Such a deal goes against the grain of most high-risk debt sales in Europe this year, as the loan market has typically offered better terms than the bond market for highly leveraged companies.

Interest rate margins on European leveraged loans are typically just 3 to 4 per cent, and new deals are now "covenant-lite" as standard, meaning they lack the protections lenders traditionally demanded to lend to riskier companies.

"A company moving from the loans to bonds is usually a red flag these days," said Azhar Hussain, head of global high yield at Royal London Asset Management.

"You really have to ask why they haven't been able to reprice their loans, as pretty much everyone with leveraged loans has done that this year."

The European sub-investment grade market has this year seen 12 bond-to-loan refinancings totalling €4.7bn, according to S&P Global's unit LCD.

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"I can only describe these recent deals as FILTHY: Failing In Loans, Trying High-Yield," said one bond fund manager.

The European high-yield market has seen a rush of riskier deals this month, with Hema and Klöckner Pentapast both pricing triple-C rated bonds at chunky 8.5 per cent yields, for example.

"They're getting the crap the loan market doesn't want," said one manager of collateralised loan obligations, which primarily buy leveraged loans.