Leveraged Loan & High-Yield Bond Markets
Per 31 December-23
Leveraged Loan Markets
Sponsored leveraged loan market picks up after the first three quarters of 2023; slight uptrend in yield-to-maturity in 4Q23 and new issue spreads
European quarterly sponsored loan volume and deal count (per Dec-23)
European sponsored loan volume has been increasing slightly from its low levels in 2Q23 and 3Q23…
European sponsored leveraged loan volume (€32.5bn in FY24) was only slightly lower compared to the previous year, driven by elevated volume in 4Q23 compared to 4Q22. The low volume until 3Q23 was attributed to weak M&A and LBO activity, which resulted from fears over a recession and sharp increases in financing costs.
…with new issuances in 4Q23 at a slightly higher Yield-to-Maturity than in 2Q23 and 3Q23…
The lowering of interest rates has led to a slight increase during 4Q23. With central banks reducing their policy rate hikes, and a worsening economic outlook average yield-to-maturity went up to 9.5% in 4Q23 (from 9.07% in 3Q23). Consequently, B-rated spread increased in 4Q23, while still comparatively lower compared to 4Q22.
Average quarterly new issue spreads and YTM for single-B TLBs (per Dec-23)
Annual pro forma debt/EBITDA ratios (per Dec-23)
…and leverage ratios seeing the first reduction in years
In 2022, Debt/EBITDA ratios continued the long-term trend of higher leverage, remaining steady at 5.5x, comparable to 2021 but with fewer deals. However, by YTD Dec-23, the Debt/EBITDA ratio decreased to 5.1x, marking the first downward shift in nearly a decade. The ongoing low number of deals, though, prevents this from being recognized as a definitive trend as of yet.
Source: PwC Research, LCD
High-Yield Bond Markets
High-yield bond market further declining in 4Q23 compared to previous quarters; average spreads continue to be on a slight downward trend, and M&A/LBO activities dropping sharply
European quarterly high-yield volume and deal count (per Dec-23)
After a significant decline in European high-yield bond volume in 2022, the market experienced a noteworthy rebound in 1Q23 and 2Q23, followed by another dip in 3Q23 and 4Q23. New issuance volume in 2023 increased by 93% to EUR 43 billion, compared to EUR 22.22 billion in 2022. Despite decreasing transaction volume and deal numbers in the last two quarters, demand from fixed-rate investors persists, suggesting the possibility of an upswing in private markets in the coming months.
Average spreads in basis points (per Dec-23)
Elevated interest rates and increased risk sentiment led to a surge in average double- and single-B spreads, peaking at 542 bps (double-B) and 874 bps (single-B) in 2022. However, from mid-2022 onwards, spreads have steadily decreased, extending into 4Q23 and concluding at 293 bps (double-B) and 500 bps (single-B). These figures, below the end-of-3Q23 levels, reflect a reduction in uncertainties surrounding the stability of the banking sector.
European yearly high-yield use of proceeds (in % of total volume, per Dec-23)
In 2023, there was a notable decrease in M&A and LBO activities, primarily due to heightened financing costs, challenging market conditions, and the imperative for many companies to strengthen their balance sheet resilience.
Source: PwC Research, LCD, Eikon
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