8 Mar 2018

European High Yield & Leveraged Loan Report Q4 2017 and Full Year

This report contains European leveraged finance market trends for the fourth 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) increased in 4Q’17 to €103.6 billion, more than double the €48.0 billion in 3Q’17 and a 80.4% increase from €57.4 billion issued in 4Q’16. Fourth quarter issuance was equally as robust in the leveraged loan sector (128.2% increase q-o-q) as it was in the HY sector (98.3% increase q-o-q). 

    For the full year 2017, European leveraged finance issuance reached €324.4 billion, an increase of 45.0% from €223.6 billion in 2016. Leveraged loan issuance increased by 37.9% y-o-y to €195.3 billion while high yield bond issuance set a new high of €129.1 billion in 2017 (€103.0 in Developed market Europe and €26.1 in Emerging Market Europe), an increase of 57.3% from €82.1 billion in the previous year.

  • Primary high yield issuance in 4Q’17 totaled €38.5 billion on 89 deals, a 98.3% increase from 3Q’17 (€19.4 billion on 50 deals) and a 155.4% increase from 4Q’16 (€15.1 billion on 41 deals). For the full year 2017, high yield issuance totaled €129.1 billion, up 57.3% from €82.1 billion in 2016.

    The proportion of USD-denominated issuance increased slightly to 18.8% of all issuance in 4Q’17, compared to 18.2% in 3Q’17 and 29.1% in 4Q’16. For the full year 2017, USD-denominated deals totaled €129.1 billion and accounted for 31.1% of total issuance, up from €82.1 billion, or 41.1% of total, in 2016.

    Issuance for refinancing and/or repayment of debt increased to €16.5 billion, representing 42.8% of all issuance in 4Q’17, up from €6.0 billion (31.2% of total) in 3Q’17 and from €4.6 billion (30.6% of total) in 4Q’16. For the full year 2017, high yield issuance for refinancing and/or repayment of debt was €42.3 billion, up 32.0% from €32.1bn in 2016.

  • Leveraged loan issuance, including first lien, second lien, and mezzanine financing, increased to €65.2 billion in 4Q’17, up 128.2% q-o-q (€28.6 billion in 3Q’17) and up 53.8% y-o-y (€42.4 billion in 4Q’16). For the full year 2017, €195.3 billion in leveraged loans were issued, up 37.9% from €141.6 billion in 2016. 

    Refinancing and/or repayment of debt were the largest use of proceeds in 4Q’17 with €45.0 billion, followed by leveraged buyouts with €19.1 billion or 29.3% of total, and acquisitions with €1.0 billion or 1.6% of total. The remainder was split between general corporate and other purposes. For the full year 2017, the top use of proceeds mirrored 4Q’17: refinancing and/or repaying of debt (€134.2 billion or 68.7% of 2017 total), leveraged buyouts (€45.3 billion or 23.2%), and acquisitions (€13.9 billion or 7.1%). 

    In 4Q’17, Pricing spreads for institutional loans tightened by 24 basis points (bps) q-o-q and by 62 bps y-o-y while spreads for pro rata loans tightened by 8 bps q-o-q and by 44 bps y-o-y.
  • Credit quality: As of December 2017, S&P reported the trailing 12-month speculative-grade default rate at 2.2%, unchanged from 2.1% end-September 2017 and up from 1.7% end-December 2016. Moody’s reported the trailing 12-month speculative-grade default rate in December 2017 to be 2.6%, up from 2.4% end-September 2017 and up from 2.3% end-September 2016.

    Ten defaults were reported in the fourth quarter of 2017, with all but one from developed market Europe. For the full year 2017, 26 European high yield issuers defaulted, 22 in developed market Europe and the remaining four in emerging market Europe.

    According to S&P, in 4Q’17 upgrades exceeded downgrades in developed market Europe (47 upgrades to 26 downgrades), a better ratio than 24 upgrades to 23 downgrades in 3Q’17 and a better ratio than in 4Q’16 (26 upgrades to 33 downgrades). In emerging market Europe, there were 5 upgrades and 7 downgrades by S&P in 4Q’17 compared to 5 upgrades and 2 downgrades in 3Q’17 and 6 upgrades and 7 downgrades in 4Q’16. For the full year 2017, the number of upgrades increased to 151 from 115 in 2016 while number of downgrades dropped sharply to 109 in 2017 from 170 in 2016 resulting in a much smaller downgrade to upgrade ratio in 2017.