European High Yield and Leveraged Loan Report: Q1 2019 | AFME

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European High Yield and Leveraged Loan Report: Q1 2019
20 May 2019
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Julio Suarez Director

The Report contains European leveraged finance market trends for the first quarter of 2019, 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) increased to €41.9 billion in 1Q’19, a 19.0% increase from €35.2 billion in 4Q’18 but a 53.8% decrease from €90.6 billion in 1Q’18.

    • Primary high yield issuance totaled €17.0 billion on 38 deals in 1Q’19, a 145.1% increase from €6.9 billion on 22 deals in 4Q’18 but a 31.9% decrease from €24.9 billion on 71 deals in 1Q’18.

      The proportion of USD-denominated issuance increased to 52.4% of all issuance in 1Q’19 (8.8% in 4Q’18 and 43.1% in 1Q’18).

      The leading use of proceeds for high yield bonds issuance in 1Q’19 were general corporate purposes with €6.3 billion— up 126.8% from €2.8 billion in 4Q’18 but down 22.7% from €8.2 billion in 1Q’18.

      High yield issuance for refinancing and/or repayment of debt in developed market Europe increased to €2.4 billion in 1Q’19, representing 22.7% of all issuance, a twofold increase from €1.2 billion (17.0% of total) in 4Q’18 but a decrease of 55.1% from €5.2 billion (27.0% of total) in 1Q’18.

    • Leveraged loan issuance, including first lien, second lien, and mezzanine financing, decreased to €24.9 billion in the first quarter of 2019, a 11.9% decrease from €28.2 billion in 4Q’18 and a 62.1% decrease from €65.7 billion in 1Q’18.

      Over one third (37.0%) of deals financed in the first quarter of 2019 were issued for refinancing and/or repayment of debt, down from 66.7% in 4Q’18 and down from 42.0% in 1Q’18.

      Pricing spreads for institutional loans widened by 25 basis points (bps) q-o-q and by 58 bps y-o-y while spreads for pro rata loans widened by 12 bps q-o-q and by 36 bps y-o-y.

    • Credit quality: As of March 2019, S&P reported the trailing 12-month speculative-grade default rate at 2.0%, an increase from 1.9% end-December 2018 but a decrease from 2.1% end-March 2018. Moody’s reported the trailing 12-month speculative-grade default rate in March 2019 to be 0.9% (1.3% end-December 2018 and 3.1% end-march 2018).

      Four bond-related defaults were reported in the first quarter of 2019, three in developed market Europe and one in emerging market Europe. The most common reason for default in 1Q’19 was distressed exchange.

      According to S&P, in 1Q’19 downgrades exceeded upgrades in developed market Europe (26 downgrades to 13 upgrades), a much worse ratio than 39 downgrades to 27 upgrades in 4Q’18 and the 20 downgrades to 22 upgrades in 1Q’18.