Cracks are starting to appear in Europe's leveraged loan market, leaving lenders and sponsors worried that not all deals in the pipeline will receive a positive response. A number of lenders dropped out of the €1.275bn term loan B for French real estate services company FONCIA in mid-March when pricing firmed at 350bp over Euribor from 350bp-375bp guidance. Those that remained in the deal got a much larger allocation than expected. When demand for deals outweighs supply, investors typically inflate orders on the assumption they will be scaled back, so getting hit for a full order came as a shock to many, prompting anger among investors that the syndication process had not gone smoothly. With investors full with Foncia paper, they turned to the secondary market to sell out, leading prices to soften on the break in a reverse to what has happened over the course of the past six months. Foncia's loan allocated at 99.5 OID but was bid at 98.93 on March 31, according to Refinitiv LPC data.
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