AFME Q2 2023 European High Yield and Leveraged Loan Report | AFME

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Data Research
AFME Q2 2023 European High Yield and Leveraged Loan Report
28 Sep 2023
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Author Julio Suarez Director
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The Report contains European leveraged finance market trends for the second quarter of 2023, 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 €63.6 billion in proceeds in 2Q’23, an 11.0% increase from €57.3 billion in 1Q’23 and up 1.4% from €62.7 billion in 2Q’22.
  • High yield bond issuance totalled €19.5 billion on 59 deals in 2Q'23, a 47.7% increase from €13.2 billion in 1Q’23 and a 77.2% increase from €10.9 billion in 2Q’22.

    The proportion of USD-denominated issuance increased to 24.8% of all issuance in 2Q'23, up from 10.8% in 1Q’23 and 12.3% in 2Q’22.

    The leading use of proceeds for high yield bond issuance in 2Q'23 was Repay Debt/Refinancing, at €9.9 billion, which was higher than €4.5 billion in 1Q’23 and than €1.1 billion in 2Q’22.
  • Leveraged loan issuance including first lien, second lien, and mezzanine financing, totaled €44.11 billion in 2Q'23, up 0.1% from €44.08 billion in 1Q’23 and down 14.9% from €51.8 billion in 2Q’22.

    Three sectors accounted for 39.9% of leveraged loan issuance in 2Q’23. The leading sector was Retail (€7.1 billion or 16.1% of total), followed by Professional Services (€5.6 billion, 12.7%), and Leisure & Recreation (€4.9 billion, 11.1%), with the balance split between 16 other sectors.

  • Credit quality: S&P reported the trailing 12-month speculative-grade default rate at 3.1% in June 2023, an increase from 3.0% in March 2023. Moody's reported the speculative-grade default rate at 2.9% in June 2023, up from 2.6% in March 2023.

    There were 11 bond defaults reported in the 2Q’23 by Standard and Poor’s and Moody’s. The most frequent reasons were distressed exchange (for 7 of them) and Bankruptcy (for 2 of them).
    Fitch reported an increase in European Leveraged Loan default rates (by number of deals) to 2.6% in June 2023 from 1.26% in December 2022.

    According to Reorg, 91% of the European leveraged loan deals examined in 2Q’23 were covenant-lite.