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Julio Suarez
AFME European High Yield and Leveraged Loan Report: Q2 2020
25 Aug 2020
The Report contains European leveraged finance market trends for the second quarter of 2020, 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 €70.0 billion in proceeds in 2Q’20, a 25.9% decrease from €94.4 billion in 1Q’20 but an increase from €63.4 billion in 2Q’19. This quarterly decline was driven mainly by a decrease in leveraged loan issuance. Primary high yield bond issuance totaled €24.2 billion on 48 deals in 2Q’20, a 16.9% decrease from €29.1 billion on 71 deals in 1Q’20 and a 17.0% decrease from €29.2 billion on 71 deals in 2Q’19. The proportion of USD-denominated issuance increased to 34.1% of all issuance in 2Q’20, up from 24.2% in 1Q’20 and from 28.6% in 2Q’19. The leading use of proceeds for high yield bonds issuance in 2Q’20 was repayment/refinancing of debt with €15.0 billion, which was up 40% from €10.7 billion in 1Q’20 and up from €7.4 billion in 2Q’19. Leveraged loan issuance, including first lien, second lien, and mezzanine financing, totaled €45.7 billion on 64 deals in 2Q’20, down 29.9% from €65.2 billion on 83 deals in 1Q’20 but a 33.8% increase from €34.2 billion on 76 deals in 1Q’20 General corporate purposes were the largest use of proceeds in 2Q’20 with €18.9 billion, followed by refinancing/repayment of debt with €11.5 billion, and LBO/MBO with €6.9 billion or 15.1% of the total. Pricing spreads for institutional loans widened by 76 basis points (bps) q-o-q and by 1 bps y-o-y. Spreads for pro rata loans tightened by 3 bps q-o-q and by 87 bps y-o-y. Credit quality: As of June 2020, S&P reported the trailing 12-month speculative-grade default rate at 3.4%, an increase from 2.4% in March 2020 and from 2.3% in June 2019. Moody’s reported the trailing 12-month speculative-grade default rate at 2.8% in June 2020, up from 1.9% in March 2020 and from 1.2% in June 2019. Fitch also reported an increase in leverage loan default rates to 6.4% in June 2020 (including c* and cc* rated issuers as if those had already defaulted). 17 bond-related defaults were reported in the second quarter of 2020 by Standard and Poor’s and Moody’s, 15 in developed market Europe and two in emerging market Europe. Missed interest payment was the most frequent reason for default. According to Moody’s, in 2Q’20 downgrades exceeded upgrades in Europe (123 downgrades to 5 upgrades), a worse ratio than 78 downgrades to 4 upgrades in 1Q’20 and than 40 downgrades to 16 upgrades in 2Q’19. S&P also reported a deterioration in the downgrades-upgrades ratio. According to S&P, in 2Q’20 downgrades exceeded upgrades in Europe (152 downgrades to 3 upgrades), a worse ratio than 97 downgrades to 9 upgrades in 1Q’20 and than 25 downgrades to 28 upgrades in 2Q’19.
Julio Suarez
AFME Equity Primary Markets and Trading Report Q2 2020
12 Aug 2020
AFME is pleased to circulate its Equity Primary Markets and Trading Report for the second quarter of 2020 (Q2 2020). The report provides an update on the performance of the equity market in Europe in activities such as primary issuance, Mergers and Acquisitions (M&A), trading, and equity valuations Key highlights: Equity underwriting on European exchanges accumulated a total of €78.6 bn proceeds in the first half of 2020 (1H 2020), an increase of 22% YoY from the value originated in 1H 2019 (€64.4 bn). Follow-on offerings rose 50% YoY, the largest 1H amount since 2017. IPO proceeds decreased 59% YoY, with the lowest 1H number of IPOs since 2009. Completed Mergers and Acquisitions (M&A) of European companies totalled €331.2bn in 1H 2020 a 24% decrease from the amount completed in 1H 2019 (€433.3bn). The decline in completed M&A activity was driven predominantly by a reduction in cross-border deals (i.e. with companies located outside Europe). The amount of announced M&A totalled €315.5bn in 1H 2020 a 21% YoY decrease from the same period of 2019. Average daily equity trading activity on European main markets and MTFs rose 28% YoY in 1H 2020. Domestic market capitalisation of European listed shares stood at €12.3tn at the end of June 2020, a 15% YtD decrease from €14.5 at the end of 2019. Update on MiFID II dark trading caps:The European Double Volume Cap (DVC) mechanism seeks to limit the amount of dark trading of equity-like instruments on EU venues. ESMA publishes on a monthly basis the list of instruments temporarily banned from dark trading at the EU or trading venue level after their trading volumes surpass pre-determined dark trading thresholds. As of July 2020 there were 317 instruments suspended from dark trading at the EU or trading venue level, which represents c1% of the Universe of equity-like instruments on ESMA’s July DVC files (27,208 equity or equity-like instruments). The number of instruments banned from dark trading has stabilised in recent months at between 300-400 (from above 1,200 in August 2018). 1H 2020 variation of European Equity activity EU27 member countries, UK and Switzerland
Julio Suarez
Impact of COVID-19 on European Capital Markets: Market Update
13 Jul 2020
AFME has published a new research note on the“Impact of COVID-19 on European Capital Markets: Market Update”. The purpose of this report is to provide an update on how European capital markets have performed during the COVID-19 outbreak. This report follows a first publication launched in mid-April which assessed the initial impact of COVID-19 on Europe’s capital markets. Key findings: Issuance levels of investment grade (IG) bonds have reached record weekly, monthly and quarterly volumes.Q2 2020 saw the highest ever quarterly value of IG bond issuance for Non-financial corporates in Europe totalling EUR 225bn in proceeds. The increase has been largely driven by Central Bank support. An ESG recovery.European social, sustainable, and green bond issuance reached EUR 55.2bn in Q2 2020, the highest quarterly issuance volume to date. The increase was predominantly driven by social bond issuance which reached a record issued amount during the quarter of EUR19.1 bn. European market liquidity has deteriorated over the last few months.In most asset classes, bid ask spreads remain above pre-COVID levels with equity and corporate bond market bid-ask spreads respectively remaining elevated at about 30% and 40% higher than pre-crisis levels as of late June. Government bond bid-ask spreads also continue above pre-COVID levels, particularly for Italian and French sovereign bonds. Price volatility in equity and in fixed income markets also remain elevated and above pre-COVID levels. Follow on equity offerings have continued to support the recoveryas companies seek to recapitalise and improve their balance sheet capacity. European secondary equity offerings totalled EUR 28bn in 2Q 2020, the largest quarterly volume since Q1 2017. After two months of a virtually inactive IPO market, the European primary equity market reopened in May with EUR 3.6bn in proceeds from 24 deals.Issuance volumes continue subdued compared to pre-COVID levels. European listed SMEs have also benefited from access to equity capital, predominantly from secondary offerings on Junior exchangeswhich totalled EUR 2.7bn between March and June of 2020. This amount, however, continues to represent a minor portion of total SME funding compared to bank lending. Record volumes of bank lending.Euro area statistics have shown a marked increase in corporate net lending and in gross lending to SMEs, as underpinned by EUR 2.6trn in state loan guarantees issued by European governments. Further increases in bank balance sheets are also to be expected as corporates continue to draw down on their existing borrowing facilities and banks channel government support programmes to clients. The report follows from AFME’s research on theinitial impact of COVID-19 on Europe’s capital marketsand summarises AFME’s approach to COVID-19 and the areas the association has been focusing on to ensure that markets remain well-functioning and liquid in light of the recent impact of the coronavirus. – Ends –
Julio Suarez
AFME European High Yield and Leveraged Loan Report: Q1 2020
26 Jun 2020
The Report contains European leveraged finance market trends for the first quarter of 2020, 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 €68.0 billion in proceeds 1Q’20, a 15.3% decrease from €80.3 billion in 4Q’19 but an increase from €46.4 billion in 1Q’19. This quarterly decrease was driven mainly by a decrease in leveraged loan issuance. Primary high yield issuancetotaled €29.2 billion on 71 deals in 1Q’20, a 13.9% decrease in volume from €33.9 billion on 67 deals in 4Q’19 and a 70.7% increase from €17.1 billion on 40 deals in 1Q’19. The proportion of USD-denominated issuance decreased to 24.2% of all issuance in 1Q’20, down from 26.0% in 4Q’19 and from 34.8% in 1Q’19. The leading use of proceeds for high yield bonds issuance in 1Q’20 were general corporate purposes with €13.2 billion. Leveraged loan issuance, including first lien, second lien, and mezzanine financing, totaled €38.8 billion on 73 deals in 1Q’20, down 16.3% from €46.4 billion on 67 deals in 4Q’19 and a 32.3% increase from €29.3 billion on 60 deals in 1Q’19. 59.4% of deals financed in the 1Q’20 were issued for refinancing and/or repayment of debt, down from 67.9% in 4Q’19 but up from 39.9% in 1Q’19. Pricing spreads for institutional loans tightened by 26 basis points (bps) q-o-q and by 46 bps y-o-y. Spreads for pro rata loans widened by 7 bps q-o-q and by 25 bps y-o-y. Credit quality: S&P reported the trailing 12-month speculative-grade default rate at 2.4% as of March 2020, an increase from 2.2% in December 2019 and from 2.0% in March 2019. Moody’s reported the trailing 12-month speculative-grade default rate at 1.7% in March 2020, up from 1.5% in December 2019 and from 1.0% in March 2019. Four bond-related defaults were reported in the first quarter of 2020 by S&P and Moody’s, three in developed market Europe and one in emerging market Europe. In the first two months of 2Q’20, 11 bond-related defaults were reported by S&P and Moody’s, with missed interest payment as the most common reason for default. According to Moody’s, downgrades exceeded upgrades in Europe (76 downgrades to 4 upgrades), a worse ratio than 34 downgrades to 6 upgrades in 4Q’19 and than 16 downgrades to 10 upgrades in 1Q’19.
Julio Suarez
AFME Prudential Data Report Q1 2020
22 Jun 2020
This report collates timely information on EU GSIBs’ prudential capital, leverage and liquidity ratios with updated statistics as at 31 March 2020. It also illustrates the recent performance of the debt and contingent convertibles (CoCo) markets and the funding structure for banks in Europe as of June 2020. Among the main findings of this report: European systemically important banks (GSIBs) reported in 1Q20 a decline in their capital ratios on the back of increased balance sheet use to support the COVID-19 economic recovery. Total assets expanded 10% QoQ, exposure measure increased 6.7% QoQ while RWAs rose 2% QoQ. European GSIBs end-point CET1 ratio decreased to 13.4% in 1Q20, from 13.6% in 4Q19. End-point Tier 1 ratios decreased to 15.0% in 1Q20, from 15.3% in 4Q19. End-point Leverage ratios (LR) decreased to 4.6% in 1Q20 from 4.9% in 4Q19. Liquidity Coverage Ratio (LCR) increased to 142.1% in 1Q20, from 140.4% in 4Q19, driven by a c18% increase in cash and central bank deposits. TLAC ratio stood at 25.7% relative to RWAs and 8.0% as a percentage of leverage exposure. Contingent Convertibles (CoCo): CoCo issuance was abruptly interrupted during the months of March and April due to the sharp increase in CoCo risk premia as a result of the market turbulence generated by the COVID-19 outbreak. The CoCo market has recently reopened with the issuance of €3.8bn in proceeds since May-20. These notes, however, have been issued with higher coupon rates compared to those issued in 1Q20 (5.8% in 2Q20 vs. 4.6% in 1Q20 for fixed rate bonds). BOX: Pages 21-23 provide a summary of the recently approved targeted changes to the Capital Requirements Regulation (CRR) – “CRR quick fix” The CRR quick fix will complement supervisory measures to ensure that banks have sufficient capacity going forward, although this should be kept under review given the unprecedented scale of the present crisis.
Julio Suarez
AFME Securitisation Data Report Q1 2020
17 Jun 2020
AFME is pleased to circulate its Q1 2020 Securitisation Data Report. Please note that there have been some changes in sources used and methodology; these have been noted in the Report. A full statement regarding our methodology is available here. Main findings: In Q1 2020, EUR 30.1 billion of securitised product was issued in Europe, a decrease of 61.7% from Q4 2019 and a decrease of 2.3% from Q1 2019. Of the EUR 30.1 billion issued, EUR 21.4 billion was placed, representing 71.1% of issuance, compared to the 46.1% of issuance in Q4 2019 and the 63.3% of issuance in Q1 2019. Outstanding volumes (excluding outstanding CLOs) fell slightly to EUR 0.99 trillion outstanding at the end of Q1 2020, a decrease of 1.8% QoQ and 0.02% YoY. Credit Quality: In Europe, upgrades outpaced downgrades in Q1 2020, with upgrades concentrated in RMBS, both conforming and non-conforming. Regulatory update: The implementation of the Level 2 legislation under the STS Framework is still progressing. However, some of the key elements of the Securitisation Framework are still pending finalisation. Included in this report is a breakdown of the Securitisation Regulation and CRR Level 2 mandates by article number and status by date of completion. On 8 April the EC launched a consultation on its Renewed Sustainable Finance Strategy which includes a section on green securitisation. Among other questions, the EC is requesting feedback on the need for a dedicated regulatory and prudential framework for green securitisation. AFME is preparing its response.
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