Leveraged Loan & High-Yield Bond Markets
1Q24 | April 2024
Leveraged Loan Markets
Sponsored leveraged loan market gets off to a flying start to the year, roughly doubled compared to 4Q23; Average yield-to-maturity drops significantly (1Q24 8.6% vs. 4Q23 9.5%)
European quarterly sponsored loan volume and deal count (per Mar-23)
European sponsored loan volume picks up considerably in 1Q24 after two quarters with only moderate growth …
European sponsored leveraged loan volume significantly higher with €22.7bn (vs. 1Q23: €8.6bn). M&A and LBO players are increasingly active again despite still high interest rates.
…with new issuances in 1Q24 at a significantly lower Yield-to-Maturity than in 4Q23…
Central banks adopting a wait-and-see approach with their policy rates, while inflation is approaching the target value. Yield-to-maturity went down to 8.6% in 1Q24 (from 9.5% in 4Q23). B-rated spread moving in the same direction (4Q23 465 bps vs. 1Q24 419 bps).
Average quarterly new issue spreads and YTM for single-B TLBs (per Mar-23)
Annual pro forma debt/EBITDA ratios (per Mar-23)
…and leverage ratios back on the way to the old path after one year of decreasing ratios
In 2023, Debt/EBITDA ratios broke with the long-term trend of higher leverage, decreasing significantly to 5.0x, compared to 5.5x in 2022. By YTD Feb-24, the Debt/EBITDA ratio increased to 5.4x, after the first downward shift in nearly a decade..
Source: PwC Research, LCD
High-Yield Bond Markets
High-yield bond market significantly increasing in 1Q24 compared to previous two quarters; average spreads continue to be on a slight downward trend
European quarterly high-yield volume and deal count (per Mar-24)
Even though elevated interest rates continued to weigh on European high-yield bond issuance in 2023, bond markets showed signs of stability as quarterly volumes started to pick up again and exceeded those of 2022. The rebound in 1Q23 and 2Q23 was followed by another dip in 3Q23 and 4Q24, prompted by possible issuers, who waited for more favorable market conditions as the beginning of interest rate cuts was anticipated. In 1Q24, high-yield bond volume increased by approx. 74% compared to 1Q23, potentially signaling the start of recovery.
Average spreads in basis points (per Mar-24)
Average double and single B spreads continued their downward trend in 1Q24 despite the pullback in Treasuries, concluding at 236 bps (double-B) and 471 bps (single-B). These developments are driven by market adjustments to more realistic expectations about the timing and magnitude of interest rate easing.
European yearly high-yield use of proceeds (in % of total volume, per Mar-24)
Heightened financing costs as well as challenging market conditions and growing regulatory scrutiny led to a decline in M&A and LBO activities in 2023. As interest rates continue to stabilize and more favorable market conditions are anticipated for financial investors, European M&A and LBO activities are expected to increase.
Source: PwC Research, LCD, Eikon
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