__Debt Finance and Capital Markets
US and European leveraged finance markets ended volatile year on a positive note
Both regions saw leveraged debt issuance decline early in 2020 as COVID-19 restrictions took hold but launched impressive recoveries, driven primarily by high yield bond activity
After a steady start to 2020, US leveraged loan issuance more than halved in Q2, falling from US$329.7 billion to US$148.5 billion quarter-on-quarter. By year-end, however, issuance had rebounded, reaching US$219.6 billion in Q4. Due to this rally, the US leveraged loan market limited the issuance decline to approximately 4 percent year-on-year.
High yield bond (HYB) markets fared even better, winning market share from the loan space. Driven primarily by refinancings, 2020 US HYB issuance came in at US$428.3 billion—higher than any 12-month period in the past five years and 69 percent above the US$253.2 billion recorded in 2019.
Several factors prompted this increase but, most importantly, borrowers were seeking to strengthen their balance sheets. Ultimately, many borrowers turned to the HYB market. As a result, in Q2 2020 alone, US issuance more than doubled, quarter-on-quarter, to US$151.1 billion—its highest quarterly total in five years.
In Western and Southern Europe, leveraged loan issuance also hit a COVID-19-related wall in March 2020. By the end of Q2 2020, however, the region’s leveraged loan activity had returned almost to pre-pandemic levels, from US$75.2 billion in Q1 to US$83.4 billion in Q2.
And while activity slowed in H2 2020—due primarily to new waves of COVID-19 hitting the UK and Europe—leveraged loan issuance in Western and Southern Europe ended 2020 up by more than 10 percent year-on-year, from US$228.2 billion to US$259.6 billion.
HYB markets in Western and Southern Europe experienced the same boost seen in the US. Between Q2 and Q3 2020, the HYB market jumped by more than 40 percent, from US$23 billion to US$32.9 billion, and ended 2020 at US$113 billion. This growth was up slightly more than 10 percent on 2019 figures.
In the months ahead, COVID-19 will continue to affect leveraged finance markets even as vaccines are rolled out. Lenders will likely focus on high-quality credits and sectors including technology, online retail and healthcare, which found growth opportunities during the pandemic.
For companies that weathered the COVID-19 storm, 2021 may promise new opportunities.