Primary European Leveraged Credit Markets Quiet in First Quarter; Only One High Yield Bond Issue; Global Credit Market Conditions Remains Weak But Shows Signs of Improvement

Leveraged finance issuance, which includes leveraged loans and high yield bonds, declined to EUR 6.3 billion in the first quarter of 2009 compared to EUR 11.1 billion in the same period in 2008.

High yield bond issuance of EUR 0.3 billion on one deal was recorded in the first three months of 2009 compared to no issuance in all four quarters of 2008.

Leveraged loan issuance was EUR 6.0 billion in the first quarter compared to EUR 11.1 in the same year-earlier period.

There were no European emerging market bonds issued in both the first quarter of 2009 and the final quarter of 2008.

Investor risk sensitivity, subdued global investor demand, prospects for slower economic growth and uncertain pricing contributed to continued depressed market conditions in the European high yield bond and leveraged loan markets.

European high yield bond and leveraged loan returns turned positive in the first quarter. The Merrill Lynch High Yield Index and the S&P LCD European Leveraged Loan Index returned 8.0 percent and 5.29 percent, respectively.

The European leveraged loan pipeline backlog ended the quarter with EUR 1.8 billion on bank books, well below the EUR 31.6 billion recorded at the end of 2008, and less than the EUR 38.6 billion a year ago. In the U.S., leveraged deals in the pipeline have also declined, falling to EUR 1.1 billion at end-March from EUR 12.1 billion at year-end.

However, tightened financing conditions and lower-to-negative profit and economic growth trends continue to be potential downsides.

Credit quality risk has risen further in the first quarter from a period of historically low default rates during which corporate issuers built up their financial positions in an environment of low borrowing costs.

Elevated leverage levels and sharply reduced credit availability, along with a eurozone recession, add to the likelihood of significantly higher default rates over the year.

About the Report

Done in partnership with AFME / EHYA, the AFME / EHYA Leveraged Loan and High Yield report is a quarterly report on the trends and statistics of the European leveraged finance market, including both high yield loans and leveraged loans. Issuance volumes, credit trends, global comparative issuance data, market highlights and commentary are included.

For more information on AFME’s efforts in the European leveraged finance sector, please visit AFME.

Credits

AFME / EHYA

• Gilbey Strub

SIFMA Research

• Managing Director, Diretor of Research: Kyle Brandon
• Research Analyst: Paul Rainy