22 Aug 2017

European High Yield & Leveraged Loan Report Q2 2017

The AFME High Yield Division is pleased to circulate the Quarterly Data Report for the second quarter of 2017 (the “Report”).

The Report contains European leveraged finance market trends for the second quarter of 2017, 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 in 2Q’17 to €72.9 billion, a 19.6% decrease from €90.6 billion in 1Q’17 but a 16.3% increase from €62.6 billion issued in 2Q’16. This was, however, the second highest quarterly issuance since 2Q’14 after the record issuance in 1Q’17.

  • Leveraged loan issuance, including first lien, second lien, and mezzanine financing, decreased to €37.4 billion in 2Q’17, down 31.3% q-o-q (€54.5 billion in 1Q’17) but up 24.1% y-o-y (€30.1 billion in 2Q’16).

    In 2Q’17, only €2.0 billion of amend-and-extend (“A&E”) loans were financed, a significant decrease from €16.3 billion in 1Q’17 but an increase from €0.3 billion in 2Q’16.

    Pricing spreads for institutional loans tightened by 7 basis points (bps) q-o-q and by 37 bps y-o-y while spreads for pro rata loans tightened by 24 bps q-o-q and by 6 bps y-o-y.

  • Primary high yield issuance in 2Q’17 totalled €35.4 billion on 79 deals, a 1.9% decrease from 1Q’17 (€36.1 billion on 78 deals) but a 9.1% increase from 2Q’16 (€32.5 billion on 56 deals).

    The proportion of USD-denominated issuance increased to 45.4% of all issuance in 2Q’17, compared to 39.1% in 1Q’17 but a decrease from 51.4% in 2Q’16.

    High yield issuance for refinancing and/or repayment of debt in developed market Europe decreased to €8.7 billion, representing 34.5% of all issuance in 2Q’17, down from €12.1 billion (43.3% of total) in 1Q’17 and from €14.1 billion (48.8% of total) in 2Q’16. In emerging market Europe, €0.3 billion in high yield debt was issued for refinancing and/or repayment of debt in the second quarter of 2017, which was an increase from no issuance for this purpose in both 1Q’17 and 2Q’16.

  • Credit quality: According to Standard and Poor’s (S&P), in 2Q’17 upgrades exceeded downgrades in developed market Europe (29 upgrades to 26 downgrades), a slightly worse ratio than 37 upgrades to only 16 downgrades in 1Q’17 but more positive than 33 upgrades to 46 downgrades in 2Q’16.

    Seven bond-related defaults were reported in the second quarter of 2017, five in developed market Europe and two in emerging market Europe.

    Speculative-grade bond default rates stood at 2.1% according to S&P (unchanged from 2.1% at end-March 2017) and 2.8% according to Moody’s (up from 2.5% at end-March 2017).

    According to Fitch, the trailing 12-month European leveraged loan default rate stood at 1.4%, up from 1.0% at end-March 2017.