21 May 2018

European High Yield & Leveraged Loan Report Q1 2018

The Report contains European leveraged finance market trends for the first quarter of 2018, 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) decreased to €62.8 billion in 1Q’18, a 39.9% decrease from €104.5 billion in 4Q’17 and a 30.6% decrease from €90.5 billion issued in 1Q’17. The quarterly decrease in 1Q’18 was driven by both a 41.5% decrease in leveraged loan issuance and a 37.1% decrease in high yield bond issuance.

  • Primary high yield issuance in 1Q’18 totaled €24.3 billion on 77 deals, a 37.1% decrease from 4Q’17 (€38.6 billion on 103 deals) and a 31.1% decrease from 1Q’17 (€35.3 billion on 88 deals).

    The proportion of USD-denominated issuance increased to 43.8% of all issuance in 1Q’18, up from only 18.7% in 4Q’17 and up from 37.5% in 1Q’17.

    High yield issuance for refinancing and/or repayment of debt in developed market Europe decreased to €5.2 billion, representing 27.9% of all issuance in 1Q’18, down from €14.3 billion (40.3% of total) in 4Q’17 and from €27.1 billion (30.9% of total) in 1Q’17. In emerging market Europe, €0.4 billion (7.4% of total) in high yield debt was issued for refinancing and/or repayment of debt in the first quarter of 2018, a decrease from €1.1 billion (34.4% of total) in 4Q’17 but up from no issuance for this purpose in 1Q’17.

  • Leveraged loan issuance, including first lien, second lien, and mezzanine financing, decreased to €38.5 billion in the first quarter of 2018, down 41.5% q-o-q (€65.8 billion in 4Q’17) and down 30.2% y-o-y (€55.2 billion in 1Q’17).

    Refinancing and/or repayment of debt were the third largest use of proceeds in 1Q’18 with €10.2 billion, following acquisitions with €15.1 billion or 39.1% of total, and leveraged buyouts with €10.4 billion or 27.0% of total.

    In the first quarter of 2018, pricing spreads for institutional loans tightened by 2 basis points (bps) q-o-q and by 40 bps y-o-y while spreads for pro rata loans tightened by 18 bps q-o-q and by 133 bps y-o-y.

  • Credit quality: As of March 2018, S&P reported the trailing 12-month speculative-grade default rate at 2.1%, a slight decrease from 2.4% end-December 2017 and unchanged from 2.1% end-March 2017. Moody’s reported the trailing 12-month speculative-grade default rate in March 2018 to be 2.4%, down from 2.6% end-December 2017 and from 2.5% end-March 2017.

    Three bond-related defaults were reported in the first quarter of 2018, all from U.K. based companies. Two defaults were due to distressed exchange and one firm filed for Chapter 11.

    According to S&P, in 1Q’18 upgrades exceeded downgrades in developed market Europe (22 upgrades to 20 downgrades), a slightly worse ratio than 47 upgrades to 26 downgrades in 4Q’17 and than 37 upgrades to 16 downgrades in 1Q’17. In emerging market Europe, there were 11 upgrades and no downgrades by S&P in 1Q’18 compared to 5 upgrades and 7 downgrades in 4Q’17 and no upgrades and 4 downgrades in 1Q’17.