7 Dec 2017

European High Yield & Leveraged Loan Report Q3 2017

The Report contains European leveraged finance market trends for the third 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 3Q’17 to €47.6 billion, a 41.3% decrease from €81.2 billion in 2Q’17 and a 20.7% decrease from €60.0 billion issued in 3Q’16. The quarterly decrease in 3Q’17 was almost equally driven by a 44.5% decrease in high yield bond issuance and a 39.0% decrease in leveraged loan issuance.

  • Primary high yield bond issuance in 3Q’17 totalled €19.1 billion on 48 deals, a 44.5% decrease from 2Q’17 (€34.4 billion on 83 deals) and a 20.4% decrease from 3Q’16 (€23.9 billion on 44 deals).

    The proportion of USD-denominated issuance decreased to only 18.5% of all issuance in 3Q’17, compared to 42.9% in 2Q’17 and 40.2% in 3Q’16.

    High yield issuance for refinancing and/or repayment of debt in developed market Europe decreased to €4.7 billion, representing 32.3% of all issuance in 3Q’17, down from €7.4 billion (30.5% of total) in 2Q’17 and from €11.2 billion (51.7% of total) in 3Q’16. In emerging market Europe, €1.4 billion (29.8% of total) in high yield debt was issued for refinancing and/or repayment of debt in 3Q’17, which was an increase from €0.3 billion (3.0% of total) in 2Q’17 and from no issuance for this purpose in 3Q’16.
  • Leveraged loan issuance, including first lien, second lien, and mezzanine financing, decreased to €28.6 billion in 3Q’17, down 39.0% q-o-q (€46.8 billion in 2Q’17) and down 20.9% y-o-y (€36.1 billion in 3Q’16).

    Refinancing and/or repayment of debt were the largest use of proceeds in 3Q’17 with €15.7 billion, followed by leveraged buyouts with €9.9 billion or 34.6% of total, and acquisitions with €2.8 billion or 9.9% of total with the remainder €0.1 billion split between general corporate purposes and other.

    Pricing spreads for institutional loans tightened by 4 basis points (bps) q-o-q and by 38 bps y-o-y while spreads for pro rata loans tightened by 17 bps q-o-q and by 18 bps y-o-y.
  • Credit quality: As of September 2017, S&P reported the trailing 12-month speculative-grade default rate at 2.2%, a slight increase from 2.1% end-June 2017 and up from 1.9% end-September 2016. Moody’s reported the trailing 12-month speculative-grade default rate in September 2017 at 2.4%, down from 2.8% end-June 2017 and from 2.6% end-September 2016.

    Only one bond-related default was reported in 3Q’17: a Norwegian firm Norske Skogindustrier defaulted due to a missed interest payment. 

    According to S&P, in 3Q’17 upgrades exceeded downgrades in developed market Europe (24 upgrades to 23 downgrades), a slightly worse ratio than 29 upgrades to 26 downgrades in 2Q’17 but more positive than 21 upgrades to 28 downgrades in 3Q’16. In emerging market Europe, there were 5 upgrades and 2 downgrades by S&P in 3Q’17 compared to 4 upgrades and 5 downgrades in 2Q’17 and 7 upgrades and 6 downgrades in 3Q’16.