9 Aug 2018

European High Yield & Leveraged Loan Report Q2 2018

The report contains European leveraged finance market trends for the second 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 €48.3 billion in 2Q’18, a 31.9% decrease from €70.9 billion in 1Q’18 and a 41.1% decrease from €82.0 billion in 2Q’17. The issuance volume for 2Q’18 was the lowest quarterly total since 1Q’16.

  • Primary high yield issuance totalled €24.2 billion on 58 deals in 2Q’18, a 0.6% decrease from €24.4 billion on 68 deals in 1Q’18 and a 29.9% decrease from €34.5 billion on 86 deals in 2Q’17.

    The proportion of USD-denominated issuance decreased to 20.0% of all issuance in 2Q’18, down from 44.0% in 1Q’18 and from 42.7% in 2Q’17.

    High yield issuance for refinancing and/or repayment of debt in developed market Europe increased to €5.4 billion in 2Q’18, representing 24.0% of all issuance in 2Q’18, an increase of 2.8% from €5.2 billion (27.8% of total) in 1Q’18 and up 7.0% from €5.0 billion (21.1% of total) in 2Q’17. In emerging market Europe, €0.3 billion (14.0% of total) in high yield debt was issued for refinancing and/or repayment of debt in 2Q’18, a 38.8% decrease from €0.4 billion (7.4% of total) in 1Q’18 and unchanged from €0.3 billion in 2Q’17.

  • Leveraged loan issuance, including first lien, second lien, and mezzanine financing, decreased to €24.1 billion in 2Q’18, a 48.3% decrease from €46.6 billion in 1Q’18 and a 49.3% decrease from €47.4 billion in 2Q’17.

    Refinancing and/or repayment of debt were the largest use of proceeds in 2Q’18 with €8.5 billion, followed by leveraged buyouts with €8.3 billion or 34.6% of total, and acquisitions with €6.9 billion or 28.7% of total.

    Pricing spreads for institutional loans tightened by 3 basis points (bps) q-o-q and by 32 bps y-o-y, while spreads for pro rata loans remained unchanged q-o-q and tightened by 53 bps y-o-y.

  • Credit quality: As of June 2018, S&P reported the trailing 12-month speculative-grade default rate at 1.8%, a decrease from 2.1% end-March 2018 and from 2.1% end-June 2017. Moody’s reported the trailing 12-month speculative-grade default rate in June 2018 to be 2.2%, down from 2.8% end-March 2018 and from 2.8% end-June 2017.

    Six bond-related defaults were reported in the second quarter of 2018, four in developed market Europe and two in emerging market Europe. The most common reason for default in 2Q’18 was distressed exchange.

    According to S&P, in 2Q’18 upgrades exceeded downgrades in developed market Europe (31 upgrades to 26 downgrades), a slightly better ratio than 22 upgrades to 20 downgrades in 1Q’18 and compared to 29 upgrades to 26 downgrades in 2Q’17. In emerging market Europe, there were 4 upgrades and 5 downgrades by S&P in 2Q’18 compared to 11 upgrades and no downgrades in 1Q’18 and 4 upgrades and 5 downgrades in 2Q’17.