European High Yield and Leveraged Loan Report: Q4 2019 | AFME

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European High Yield and Leveraged Loan Report: Q4 2019
24 Mar 2020
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Julio Suarez Director

The Report contains European leveraged finance market trends for the fourth quarter of 2019, 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 to €80.3 billion in 4Q’19, a 4.9% increase from €76.5 billion in 3Q’19 and an over twofold increase from €35.2 billion in 4Q’18.
     
  • Primary high yield issuance totaled €33.9 billion on 67 deals in 4Q’19, a 8.4% increase in volume from €31.3 billion on 58 deals in 3Q’19 and an almost fourfold increase from €6.9 billion on 22 deals in 4Q’18.

    The proportion of USD-denominated issuance decreased to 26.0% of all issuance in 4Q’19, down from 31.1% in 3Q’19 but up from only 8.8% in 4Q’18.

    The leading use of proceeds for high yield bonds issuance in 4Q’19 were general corporate purposes with €17.7 billion.
     
  • Leveraged loan issuance, including first lien, second lien, and mezzanine financing, totaled €46.4 billion on 67 deals in the fourth quarter of 2019, up 2.5% in volume from €45.2 billion on 69 deals in 3Q’19 and a 64.1% increase from €28.2 billion on 66 deals in 4Q’18.

    Over two-thirds (67.9%) of deals financed in the fourth quarter of 2019 were issued for refinancing and/or repayment of debt, up from 47.9% in 3Q’19 and up from 66.7% in 4Q’18.

    Pricing spreads for institutional loans tightened by 12 basis points (bps) q-o-q but widened by 10 bps y-o-y. Spreads for pro rata loans widened by 47 bps q-o-q and by 38 bps y-o-y.
     
  • Credit quality: S&P reported the trailing 12-month speculative-grade default rate at 2.2% as of December 2019, an increase from 2.1% in September 2019 and from 2.0% in December 2018. Moody’s reported the trailing 12-month speculative-grade default rate at 1.5% in December 2019, up slightly from 1.4% in September 2019 but down from 2.0% in December 2018.

    Six bond-related defaults were reported in the fourth quarter of 2019 by Standard and Poor’s and Moody’s, all in developed market Europe. The most common reason for default in 4Q’19 was distressed exchange.

    According to S&P, downgrades exceeded upgrades in developed market Europe (36 downgrades to 19 upgrades), a slightly better ratio than 36 downgrades to 14 upgrades in 3Q’19 but worse than 39 downgrades to 27 upgrades in 4Q’18. Likewise, according to Moody’s, in 4Q’19 downgrades exceeded upgrades in Europe (34 downgrades and 6 upgrades), a slightly better ratio than 34 downgrades and 1 upgrade in 3Q’19 but significantly worse than 31 downgrades and 16 upgrades in 4Q’18.