AFME European High Yield and Leveraged Loan Report: Q1 2020 | AFME

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AFME European High Yield and Leveraged Loan Report: Q1 2020
26 Jun 2020
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Julio Suarez Director

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 issuance totaled €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.