17 Jun 2016

European High Yield and Leveraged Loan Report: European Leveraged Finance - Q1 2016

Issuance highlights

European leveraged finance issuance (leveraged loans and high yield bonds) decreased in 1Q’16 to €22.6 billion, a 12.0% decrease from €25.6 billion quarter-over-quarter (q-o-q) and a 62.5% decrease from €60.1 billion in 1Q’15. The quarterly decrease stems from the large fall in high yield bonds issuance, which decreased by 24.1% in the first quarter of 2016 while leveraged loan issuance increased by 2.9%; the high yield bond share of the leveraged finance market decreased to 47.3%, down from 54.9% in 4Q’15 and down from 62.8% in 1Q’15.

Market and economic environment

According to the April 2016 European Central Bank lending survey, in the first quarter of 2016, improving loan supply conditions for enterprises and the continued increase in loan demand across all loan categories suggested an ongoing recovery in loan growth. The net easing on credit standards for loans to enterprises in 1Q’16 was stronger than the historical average calculated over the period since the start of the survey in 2003. Competition remained the main factor behind the net easing of credit standards on loans to enterprises while risk perceptions and banks’ reduced cost of funds contributed only marginally to such easing.

Across firm size, credit standards were eased more strongly for loans to large firms than to small and medium-sized enterprises. For the large euro area countries, credit standards on loans to enterprises eased in Italy and Germany, while remaining unchanged in Spain and the Netherlands and continuing to tighten in France in net terms.

Credit standards on housing loans tightened and remained below the historical average since 2003. The net tightening was largely driven by the implementation of the EU mortgage credit directive and by a net tightening impact of banks’ risk tolerance.

Looking ahead to the second quarter of 2016, euro banks expect a further net easing in standards on loans to enterprises and consumer credit but continued net tightening of standards for housing loans.

Net demand increased for all types of loans in 1Q’16 and banks forecasted a further net increase in the demand for loans in the second quarter.