AFME Q4 2023 European High Yield and Leveraged Loan Report | AFME

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Data Research
AFME Q4 2023 European High Yield and Leveraged Loan Report
18 Mar 2024
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Author Julio Suarez Director
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The Report contains European leveraged finance end-of-year market trends for 2023. In particular, it includes issuance and credit performance data for the high yield and leveraged loan markets.

Key highlights:

  • European leveraged finance issuance (leveraged loans and high yield bonds) accumulated €249bn in proceeds in 2023FY, a 4.6% decline from €261bn in 2022. The decrease was driven by lower leveraged loan origination partially offset by a 45% increase in high yield bond issuance.
  • High yield bond issuance reached €66 billion in 2023, up from €45 billion in 2022 but below the pre-pandemic annual average of c€100bn per year.

High yield bond proceeds were primarily used to repay or refinance debt (€29.8bn or 45% of the total), or for general corporate purposes (€27.5bn or 41.5% of the total). LBO activity declined in 2023, with only 5.1% of proceeds flowing for such purpose (from 16.6% in 2022).

The financial, customer discretionary, and communications sectors accounted for 61.6% of high yield 2023 issuance.

  • Leveraged loan origination stood at €183bn, a 15% decline from 2022 (€216bn)

The healthcare, computers and electronics, professional services, and telecommunications sectors led 2023 loan origination, representing 45% of proceeds.

  • Credit Quality: S&P reported the trailing 12-month speculative-grade bond default rate at 3.47% in December 2023, an increase from 2.16% in December 2022. Moody’s reported the speculative-grade default rate at 3.55% in December 2023, down from 7.8% in December 2022 but up from 2.61% of March 2023

The European leveraged loan default rate (by value) reported by Fitch increased to 4.39% in 2023, up from 0.63% in 2022.

17 bond defaults were reported by Moody's and Standard and Poor's during the last quarter of the year. Defaults were mostly due to distressed exchanges and missed interest payments.

According to Reorg, 93% of the European leveraged loan deals examined in 2023 were covenant-lite.