European High Yield and Leveraged Loan Report: Q3 2019 | AFME

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European High Yield and Leveraged Loan Report: Q3 2019
19 Nov 2019

The Report contains European leveraged finance market trends for the third quarter of 2019, which includes issuance and credit performance figures for the high yield and leveraged loan markets.  

  • European leveraged finance issuance (leveraged loans and high yield bonds) increased to €66.4 billion in 3Q’19, a 1.7% increase from €65.3 billion in 2Q’19 and a 19.5% increase from €55.5 billion in 3Q’18.
  • Primary high yield issuance totaled €30.3 billion on 53 deals in 3Q’19, a 3.8% increase from €29.2 billion on 71 deals in 2Q’19 and a 71.2% increase from €17.7 billion on 46 deals in 3Q’18
    The proportion of USD-denominated issuance increased slightly to 30.9% of all issuance in 3Q’19, up from 28.6% in 2Q’19 and up from 20.3% in 3Q’18.
    The leading use of proceeds for high yield bonds issuance in 3Q’19 were general corporate purposes with €11.6 billion.
  • Leveraged loan issuance, including first lien, second lien, and mezzanine financing, totaled €36.0 billion on 52 deals in the 3Q’19, unchanged in volume from €36.0 billion on 69 deals in 2Q’19, but a 4.7% decrease from €37.8 billion on 66 deals in 3Q’18
    Nearly half (43.9%) of deals financed in the third quarter of 2019 were issued for refinancing and/or repayment of debt, down from 71.2% in 2Q’19 but up from 23.5% in 3Q’18
    Pricing spreads for institutional loans tightened by 11 basis points (bps) q-o-q but widened by 50 bps y-o-y. Spreads for pro rata loans tightened by 28 bps q-o-q and by 18 bps y-o-y. 
  • Credit quality: S&P reported the trailing 12-month speculative-grade default rate at 2.1% as of September 19, a decrease from 2.3% in June 2019 and unchanged from 2.1% in September 2018. Moody’s reported the trailing 12-month speculative-grade default rate at 1.2% in September 2019, up slightly from 1.1% in June 2019 but down from 2.4% in September 2018
    Three bond-related defaults were reported in the third quarter of 2019, all in developed market Europe. Two firms defaulted due to filing banktrupcy and one due to missed interest payment. 
    According to S&P, in 3Q’19 downgrades exceeded upgrades in developed market Europe (36 downgrades and 14 upgrades), a much worse ratio than 25 downgrades and 27 upgrades in 2Q’19 and worse than 17 downgrades and 19 upgrades in 3Q’18