20 Nov 2018

European High Yield and Leveraged Loan Report: Q3 2018

The Report contains European leveraged finance market trends for the third 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 €44.8 billion in 3Q’18, a 26.2% decrease from €60.7 billion in 2Q’18 and a 13.9% decrease from €52.0 billion in 3Q’17.

    The issuance volume for 3Q’18 was the lowest quarterly total since 1Q’16.
  • Primary high yield issuance totaled €17.7 billion on 46 deals in 3Q’18, a 28.8% decrease from €24.9 billion on 60 deals in 2Q’18 and a 8.8% decrease from €19.4 billion on 51 deals in 3Q’17.

    The proportion of USD-denominated issuance decreased to 20.3% of all issuance in 3Q’18, down from 21.9% in 2Q’18 but up from 18.2% in 3Q’17

    High yield issuance for refinancing and/or repayment of debt in developed market Europe decreased to €5.2 billion in 3Q’18, representing 29.7% of all issuance, a decrease of 3.8% from €5.4 billion (23.3% of total) in 2Q’18 but an increase of 97.5% from €2.6 billion (17.6% of total) in 3Q’17.
  • Leveraged loan issuance, including first lien, second lien, and mezzanine financing, decreased to €27.1 billion in the third quarter of 2018, a 24.5% decrease from €35.8 billion in 2Q’18 and a 16.9% decrease from €32.6 billion in 3Q’17.

    Most of the leveraged loans issued in 3Q’18 were 1st lien loans (€26.0 billion or 96.2% of total). Seven 2nd lien loans (€1.0 billion) and no mezzanine loans were financed in 3Q’18.

    Pricing spreads for institutional loans widened by 4 basis points (bps) q-o-q but tightened by 21 bps y-o-y while spreads for pro rata loans widened by 21 bps q-o-q and by 11 bps y-o-y.
  • Credit quality: As of September 2018, S&P reported the trailing 12-month speculative-grade default rate at 2.1%, an increase from 1.8% end-June 2018 but a decrease from 2.2% end-September 2017. Moody’s reported the trailing 12-month speculative-grade default rate in September 2018 to be 2.0%, down from 2.5% end-June 2018 and from 2.8% end-September 2017.

    Six bond-related defaults were reported in the third quarter of 2018, four in developed market Europe and two in emerging market Europe. The most common reason for default in 3Q’18 was a missed debt payment.

    According to S&P, in 3Q’18 upgrades exceeded downgrades in developed market Europe (19 upgrades to 17 downgrades), a slightly worse ratio than 31 upgrades to 26 downgrades in 2Q’18 but better than 24 upgrades to 23 downgrades in 3Q’17.