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Data released today by the European High Yield Association (EHYA), an affiliate of the Securities Industry and Financial Markets Association (SIFMA), showed there were no recorded high yield bond deals in the second quarter as the primary market remained virtually closed. Leveraged loan activity also continued to suffer the combined knock-on effects of stressed market and economic conditions declining in the first half of 2008 to just €35.3 billion compared to €187.7 billion in the first half of 2007. Total issuance, high yield bonds and leveraged loans combined, was €35.3 billion for the first half of 2008 compared to €221.7 billion in the same year-earlier period. European emerging market bond issuance, reported separately in this quarter’s report for the first time, was €4.1 billion.
Market conditions are a large contributing factor to depressed investor appetite for aggressive non-traditional deal structures. There are fewer leveraged buy-outs and other acquisition debt financing including private equity sponsored deals with leveraged loan LBO and recap volumes falling steeply in the first half of this year, 69.0 percent and 94.5 percent respectively, compared to the same period last year.
These market conditions are not expected to abate in the near term and issuance levels are forecast to remain muted. There has been some reduction in the sizable European leverage loan backlog from €34 billion at the start of the year to €29 billion at the end of June, but issuers are facing a triple challenge of tighter financing, lower profit and economic growth trends, and inflationary pressure arising from higher commodity prices.
“Leveraged finance moves in tandem with market conditions and will be led by, among other factors, the continuing reappraisal of risk, diminished credit market liquidity, and the continued fallout from the global economic slowdown. As deals have dried up the primary market was effectively frozen for the first half of the year. A slowing economy, lower profit trends, inflationary pressures and reduced credit availability also raises the spectre of rising default rates later this year,” said Gilbey Strub, managing director, EHYA.
Download the full report with additional details and
graphics on market issuance at http://www.ehya.com/docs/2008-Q2-EHYA-Quarterly-Report.pdf
