AFME European High Yield and Leveraged Loan Report: Q1 2022 | AFME

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Data Research
AFME European High Yield and Leveraged Loan Report: Q1 2022
16 Jun 2022
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Author Julio Suarez Director
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The Report contains European leveraged finance market trends for the first quarter of 2022, 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) accumulated €56.6 billion in proceeds in 1Q'22, a 36.2% decrease from €89 billion in 4Q’21 and a 49.9% decrease from €113.3 billion in 1Q’21. 
  • High yield bond issuance totalled €16.9 billion on 38 deals in 1Q'22, a 57.4% decrease from €39.3 billion on 90 deals in 4Q’21 and a 59.3% decrease from €41.3 billion on 94 deals in 1Q’21.

    The proportion of USD-denominated issuance decreased to 22.3% of all issuance in 1Q'22, down from 28.8% in 4Q’21 but up from 17.2% in 1Q’21.

    The leading use of proceeds for high yield bond issuance in 1Q'22 was refinancing/repayment of debt, at €7.3 billion, which was higher than €6.4 billion in 4Q’21 and than €3.2 billion in 1Q’21.
  • Leveraged loan issuance, including first lien, second lien, and mezzanine financing, totalled €39.8 billion on 99 tranches in 1Q'22, down 19.2% from €49.3 billion on 126 tranches in 4Q’21 and down 44.5% from €71.8 billion on 156 tranches in 1Q’21.

    41.6% of deals financed in 1Q'22 were issued for refinancing and/or repayment of debt, up from 25.5% in 4Q’21, but down from 64.4% in 1Q’21. LBO/MBO was the second largest use of proceeds in 1Q'22 with €14.1 billion, followed by Acquisitions with €6.2 billion.

    According to Reorg, all of the European leverage loan deals examined in 1Q'22 were covenant-lite.

    According to Covenant Review, 57% of all leveraged loan deals reviewed in 1Q'22 contained an ESG feature, compared to 68% of all deals reviewed in 4Q’21.
  • Credit quality:  S&P reported the trailing 12-month speculative-grade bond default rate at 0.7% in March 2022, a decrease from 5.9% in March 2021. Moody’s reported the speculative grade default rate at 2.25% in March 2022, down from 4.7% in March 2021.

    There were 2 defaults reported in the first quarter of 2022 by Standard and Poor’s and Moody’s. The reasons were missed interest payment and distressed exchange.

    According to S&P, in 1Q'22 bond downgrades exceeded upgrades in Europe (52 downgrades to 23 upgrades). This is a worse ratio than 39 upgrades to 21 downgrades in 4Q’21 and compared to 24 downgrades to 22 upgrades in 1Q’21. According to Moody’s, in 1Q’22 downgrades exceeded upgrades in Europe (9 upgrades to 17 downgrades), a worse ratio than 14 downgrades to 25 upgrades in 4Q’21 and worse than 13 downgrades to 21 upgrades in 1Q’21.