Annual Review 2019
Banana crop field

Leveraged finance flat in Europe, down in US, despite spikes in high yield debt

High yield bond issuance in the US and Western Europe rose by double digits in 2019

High yield bond (HYB) issuance rose 50 percent in the US to US$253.2 billion for 2019, the second-highest annual total since 2015. In Western Europe, HYBs climbed 21 percent to US$106.6 billion. In both locations, refinancing and repricing were the most common primary uses of proceeds. 

On the lending front, the story was not so rosy. Leveraged loan issuance in the US came in at US$900.7 billion, a 36 percent drop on the US$1.4 trillion recorded in 2018. New money issuance was down 20 percent on the previous year. In Western Europe, the market fared better, finishing 2019 at US$234.3 billion, marginally lower that the US$251.8 billion recorded the previous year.

Taking loans and HYBs together, leveraged finance was down to US$154 billion in the US, a 27 percent drop compared to 2018, and up a sliver to US$341 billion in Western Europe, an increase of less than 1 percent.

Impressive returns on HYBs, coupled with little indication that central banks will raise interest rates, should sustain investor appetite for bonds in 2020, which would support further issuance. Fitch Ratings expects defaults to edge higher in 2020, from 3 percent to 3.5 percent, which may counterbalance some of the positive drivers, but otherwise the next few months look positive.

European and US markets seem to expect flat deal flow and an uptick in defaults. However, collateralized loan obligation (CLO) demand for paper in Europe should be strong—and because maturities have been pushed out, defaults are expected to remain benign. Overall performance may hinge on demand from M&A dealmakers.


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