AFME European High Yield and Leveraged Loan Report: Q4 2020 | AFME

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Data Research
AFME European High Yield and Leveraged Loan Report: Q4 2020
15 Mar 2021
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Author Julio Suarez Director
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The Report contains European leveraged finance market trends for the fourth quarter of 2020, which includes issuance and credit performance figures for the high yield and leveraged loan markets.   


Key highlights:

  • European leveraged finance issuance (leveraged loans and high yield bonds) accumulated €61.9 billion in proceeds in 4Q’20, a 13.3% increase from €54.2 billion in 3Q’20 and a 28.2% decrease from €82.2 billion in 4Q’19. This quarterly increase was driven mainly by an increase in high yield bond issuance.
  • Primary high yield bond issuance totalled €33.4 billion on 83 deals in 4Q’20, a 32.5% increase from €25.2 billion on 62 deals in 3Q’20 and a 1.47% decrease from €33.9 billion on 67 deals in 4Q’19.

The proportion of USD-denominated issuance increased to 21% of all issuance in 4Q’20, up from 13.3% in 3Q’20 and from 26.0% in 4Q’19.

The leading use of proceeds for high yield bonds issuance in 4Q’20 was general corporate purposes with €25.5 billion, which was up 105.6% from €12.4 billion in 3Q’20 and up 44.0% from €17.7 billion in 4Q’19.

  • Leveraged loan issuance, including first lien, second lien, and mezzanine financing, totalled €28.5 billion on 100 deals in 4Q’20, down 1.7% from €29.0 billion on 44 deals in 3Q’20 and down 40.1% from €48.3 billion on 74 deals in 4Q’19.

    LBO/MBO was the largest use of proceeds in 4Q’20 with €10.9 billion, followed by refinancing/repayment of debt with €7.2 billion and acquisitions with €2.7 billion.

Pricing spreads for institutional loans widened by 15.9 basis points (bps) q-o-q and by 41.59 bps y-o-y. Spreads for pro rata loans widened by 54.73 bps q-o-q and tightened by 41.7 bps y-o-y.

  • Credit quality:  As of December 2020, S&P reported the trailing 12-month speculative-grade default rate at 5.3%, an increase from 4.3% in September 2020 and from 2.2% in December 2019. Moody’s reported the trailing 12-month speculative-grade default rate at 4.7% in December 2020, up from 3.9% in September 2020 and from 1.7% in December 2019.

Fitch reported an increase in loan default rates to 4.3% in December 2020 (including c* and cc* rated issuers as if those had already defaulted) from 2.45% in December 2019.

According to Reorg, the vast majority of 2020 European leverage loan deals (86%) were covenant-lite. The remaining 14% of 2020 deals were covenant-loose, containing either a leverage maintenance and/or a minimum liquidity covenant.

18 bond-related defaults were reported in the fourth quarter of 2020 by Standard and Poor’s and Moody’s, all in developed market Europe. Distressed exchange was the most frequent reason for default.

More than 75% of S&P and Moody’s European corporate ratings actions in 4Q’20 were downgrades, reflecting the ongoing credit concerns on the corporate sector.