7 Dec 2016

European High Yield and Leveraged Loan report: European Leveraged Finance - Q3 2016


Issuance Highlights

European leveraged finance issuance (leveraged loans and high yield bonds) increased in 3Q’16 to €53.3 billion, a 2.3% increase from €52.1 billion in 2Q’16 and an 80.3% increase from €29.6 billion in 3Q’15. The quarterly surge stems from the large increase in leveraged loan issuance, which increased by 45.4% in the third quarter of 2016 while high yield bonds issuance decreased by 25.3%; the high yield bond share of the leveraged finance market decreased to 44.5%, down from 61.0% in 2Q’16 but slightly up from 44.1% in 3Q’15.

Market and Economic Environment

According to the October 2016 European Central Bank lending survey, in the third quarter of 2016, loan growth continued to be supported by increasing demand across all loan categories, while credit standards remained unchanged for enterprises and eased for households. The net easing of banks’ overall terms and conditions on new loans continued for loans to enterprises and households, mainly driven by margins on average loans. Competitive pressures and, to a lesser extent, lower risk perceptions continued to have an easing effect on credit standards on loans to enterprises.

Across firm sizes, credit standards were eased marginally for loans to large firms and remained broadly unchanged for loans to small and medium-sized enterprises. For the large euro area countries, credit standards on loans to enterprises eased marginally in Germany, while they remained unchanged in France, Italy, Spain and the Netherlands.

Credit standards on housing loans eased and were stronger than the historical average. The main reported factors contributing to an easing in standards were banks’ cost of funds and balance sheet constraints.

Looking ahead to the fourth quarter of 2016, euro area banks expect a tightening of credit standards on loans to enterprises and broadly unchanged credit standards on consumer credit and other lending to households.

Net demand increased for all types of loans in 3Q’16 and banks forecast a further net increase in the demand for loans in the fourth quarter. The main contributing factors for net demand for loans to enterprises in the third quarter of 2016 were the general level of interest rates and merger and acquisition activities. Net demand for housing loans continued to be driven by the low general level of interest rates, continued favourable housing market prospects and increased consumer confidence.