Perspectives on Leveraged Finance: Reasoned Optimism?

A brake after a flicker

Since the second half of 2024, Leveraged Finance activity had experienced a flicker of growth, thanks to the return of some stability. After the Covid pandemic and the war in Ukraine, 2024 was indeed the first year without a major event disrupting the markets. We observed the emergence of new transactions, particularly a resurgence in M&A (Mergers & Acquisitions), notably illustrated by Carve-Out operations, as well as Public-to-Private (P2P) transactions, dividend recapitalisations, and a strong volume of corporate refinancings.
At the beginning of 2025, the climate seemed favourable for a continuation of this M&A dynamic, supported by advantageous market conditions for borrowers, with quality corporate profiles and a movement towards deregulation, especially in the United States. Everything suggested that after a necessary phase of digesting the new environment, and despite the strong global geopolitical uncertainty, Leveraged Finance activity could gradually pick up. Financing markets proved to be extremely favourable to issuers, as evidenced by the very tight pricings for the financing of Opella, the carve out from Sanofi bought by CD&R, on which Societe Generale acted as Global Coordinator.
However, April 2025 marked a new turning point, breaking the restart dynamic. Indeed, the announcements of the new trade policy from the United States during Liberation Day put a significant brake on the markets, affecting both Corporates and Sponsors. To simplify, the two main targets were the automotive value chain and China. In Europe, we mainly saw an impact on the automotive sector and the flow of our exports to the United States. Globally, the markets found themselves in a situation quite similar to what had occurred during the invasion of Ukraine, with a contraction almost overnight. Issuers abruptly withdrew, both in the United States and Europe, not out of fear for their own activities, but due to the uncertainty generated by the announcements. They indeed needed time and perspective to first integrate, then understand the consequences: beyond the impacts on tariffs themselves, what would be the implications for different commercial sectors. We are currently operating in extremely interconnected economies, with very long and complex supply chains; thus, it was not easy, nor immediate, to identify the consequences and their interconnections.

Return to the markets

After April, the slowdown seems to be coming to an end. We observed the return of issuers who were completely insensitive to tariffs and announcements. For example, we acted end of April as Global Coordinator in the refinancing of Stada, a German pharmaceutical company , with a very successful outcome both in terms of Investors appetite and pricing.
On the side of large companies, the constraints regarding the automotive value chain have eased, encouraging recovery. The exceptions granted to certain players, such as Jaguar Land Rover, or the exceptions applied to certain spare parts based on their manufacturing origin, created opportunities for issuers who were able to position themselves to make more straightforward transactions. In France, we worked with Getlink, as well as FORVIA, a supplier of spare parts for the automotive industry.
We also note a return of issuers who were waiting to enter the market. Many issuers who had paused their transactions are coming back. They want to be present opportunely. This is the case with Tarkett, the world leader in flooring and sports surfaces, which had withdrawn a transaction at the time of Donald Trump's announcements and has successfully relaunched the syndication in May with a very positive outcome.
The trend is similar on the Sponsors' side. Like last year, they have cash to deploy and assets to sell. Although the general attitude is one of caution among each other, some Sponsors see market volatility as an opportunity. For instance, we assisted KKR on its acquisition of Osttra, a UK-based fintech. 

Caution, but not stagnation

However, this acceleration needs to be nuanced: we have not returned to a pre-Liberation Day situation. Although Leveraged Finance activity has seen a resurgence of opportunities, the market is more cautious than it was. M&A Transactions are therefore taking longer, and negotiation phases are extended. Nevertheless, we do not feel that the machine is broken, and we expect a relatively positive evolution in the coming months, with opportunistic, pragmatic, and reasoned positions until summer, followed by a recovery in M&A. This is especially true if the stabilisation of tariffs continues, following Donald Trump's retreat on tariffs imposed on Beijing. In this context, we remain focused on potential announcements. However, Leveraged Finance is less affected than other asset classes, such as Equity, where the impacts are even more pronounced.
During these last few months of fluctuations, Societe Generale has chosen to remain active in the market despite these difficult conditions. Our role as a Bank is to stand by our clients, regardless of the market conditions. Our value lies precisely in our ability to be present and provide high-level expertise to navigate complexity and manage risks.