Leveraged Loan & High-Yield Bond Markets
Per 30 June-23
Leveraged Loan Markets
Sponsored leveraged loan market remains slow during first half year 2023; ongoing high spread levels and increasing yield-to-maturity for new issuances
European quarterly sponsored loan volume and deal count
European sponsored loan volume remains at low level in 2Q23
European sponsored leveraged loan volume experienced a significant drop from a very strong EUR 112bn in 2021 to only EUR 35bn in 2022. This decline was attributed to weak M&A and LBO activity, which resulted from fears over a recession and sharp increases in financing costs. Although 1Q23 showed more promising signs, the low activity persisted in 2Q23, with an issuance volume of EUR 4bn.
...and new issuances in 2Q23 at more than twice the yield-to-maturity compared to 2Q22…
Central banks' policy rate hikes throughout 2022 resulted in a widening of spreads, driven by fears of a recession and higher financing costs, particularly impacting leveraged companies. As a consequence, the average yield-to-maturity at issue doubled from 4.3% in 2Q22 to 8.85% in 2Q23.
Average quarterly new issue spreads and YTM for single-B TLBs
Annual pro forma debt/EBITDA ratios
…while leverage ratios remain high
In 2022, Debt / EBITDA ratios followed the long-term trend of higher leverage ratios and were at par with 2021 at 5.5x yet with significantly less deals. Debt / EBITDA ratio slightly down to 5.2x in the first half of 2023.
Source: PwC Research, LCD
High Yield Bond Markets
High-yield bond market shows signs of recovery during 1H23; average spreads remain stable during 1H23, except during the banking turmoil end of 1Q23
European quarterly high-yield volume and deal count
European high-yield bond volume experienced a sharp drop over 2022, reaching only EUR 21.9 billion, marking the weakest year since the financial crisis in 2009 and representing an 82% decline from 2021. However, in 1H23, the high-yield bond market saw a notable rebound, with new issuance volume increasing by 77% to EUR 27.0 billion, compared to EUR 15.2 billion during 1H22.
Average spreads in basis points
Rising interest rates and a heightened risk sentiment contributed to an increase in the average double- and single-B spreads, reaching a high of 542 bps (double-B) and 874 bps (single-B) in 2022. However, since mid-2022, average spreads have shown a downward trend, ending 2Q23 at 344 bps (double-B) and 570 bps (single-B), slightly lower than at the end of 1Q23, as uncertainties over the stability of the banking sector have since subsided.
European yearly high-yield use of proceeds (in% of total volume)
Dividend recapitalizations sharply decreased in 2022 due to expensive financing costs and the need for many companies to improve balance sheet resilience. In 1H23, 91% of the issuances were related to M&A/LBO and refinancing activity. However, during 1H23, refinancing became the main use-of-proceeds, reflecting the reduced M&A activity.
Source: PwC Research, LCD, Eikon
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