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Julio Suarez
AFME European High Yield and Leveraged Loan Report: Q1 2022
16 Jun 2022
The Report contains European leveraged finance market trends for the first quarter of 2022, which includes issuance and credit performance figures for the high yield and leveraged loan markets.     Key highlights: European leveraged finance issuance (leveraged loans and high yield bonds) accumulated €56.6 billion in proceeds in 1Q'22, a 36.2% decrease from €89 billion in 4Q’21 and a 49.9% decrease from €113.3 billion in 1Q’21. High yield bond issuance totalled €16.9 billion on 38 deals in 1Q'22, a 57.4% decrease from €39.3 billion on 90 deals in 4Q’21 and a 59.3% decrease from €41.3 billion on 94 deals in 1Q’21. The proportion of USD-denominated issuance decreased to 22.3% of all issuance in 1Q'22, down from 28.8% in 4Q’21 but up from 17.2% in 1Q’21. The leading use of proceeds for high yield bond issuance in 1Q'22 was refinancing/repayment of debt, at €7.3 billion, which was higher than €6.4 billion in 4Q’21 and than €3.2 billion in 1Q’21. Leveraged loan issuance, including first lien, second lien, and mezzanine financing, totalled €39.8 billion on 99 tranches in 1Q'22, down 19.2% from €49.3 billion on 126 tranches in 4Q’21 and down 44.5% from €71.8 billion on 156 tranches in 1Q’21. 41.6% of deals financed in 1Q'22 were issued for refinancing and/or repayment of debt, up from 25.5% in 4Q’21, but down from 64.4% in 1Q’21. LBO/MBO was the second largest use of proceeds in 1Q'22 with €14.1 billion, followed by Acquisitions with €6.2 billion. According to Reorg, all of the European leverage loan deals examined in 1Q'22 were covenant-lite. According to Covenant Review, 57% of all leveraged loan deals reviewed in 1Q'22 contained an ESG feature, compared to 68% of all deals reviewed in 4Q’21. Credit quality:  S&P reported the trailing 12-month speculative-grade bond default rate at 0.7% in March 2022, a decrease from 5.9% in March 2021. Moody’s reported the speculative grade default rate at 2.25% in March 2022, down from 4.7% in March 2021. There were 2 defaults reported in the first quarter of 2022 by Standard and Poor’s and Moody’s. The reasons were missed interest payment and distressed exchange. According to S&P, in 1Q'22 bond downgrades exceeded upgrades in Europe (52 downgrades to 23 upgrades). This is a worse ratio than 39 upgrades to 21 downgrades in 4Q’21 and compared to 24 downgrades to 22 upgrades in 1Q’21. According to Moody’s, in 1Q’22 downgrades exceeded upgrades in Europe (9 upgrades to 17 downgrades), a worse ratio than 14 downgrades to 25 upgrades in 4Q’21 and worse than 13 downgrades to 21 upgrades in 1Q’21.
Julio Suarez
Government Bond Data Report Q1 2022
14 Jun 2022
AFME is pleased to circulate its Q1 2022 Government Bond Data Report. This report provides a comprehensive data source with updated statistics on the Government bond primary and secondary markets in Europe (EU+UK). Key highlights European (EU+UK) government bonds and bills issuance continue above pre-pandemic levels with EUR 776.2 bn issued throughout 1Q22, which represents an increase of 24.3% (QoQ) compared to 4Q21, and a decrease of 16.3% (YoY) compared to 1Q21. During Q1 2022, European quarterly traded volumes increased 31.4% (QoQ) and 17.5% (YoY), according to Trax, a MarketAxess subsidiary. The traded amount was also a quarterly record since records began in 2013. Outstanding amount of European ESG government bonds reached EUR 257 bn during 1Q22. Volumes were driven primarily by tap issuance in France (EUR 5.0 bn), Germany (EUR 3.9bn) and the European Commission (EUR 2.5 bn). Denmark issued an inaugural green bond during Q1 2022 bringing the total number of sovereign issuers in European ESG markets to 17 with active participation by over half (55.6%) of EU Member States. 10Y spot yields rise during 2022 year-to-date, more predominantly in Eastern Europe, amid heightened market volatility, central bank policy tightening, and the start of the Russian invasion of Ukraine. Credit quality: During 1Q22 there was 1 long-term credit rating upgrade for European countries and no downgrades. This brings the full-year total to 3 upgrades and no downgrades (there were 2 further upgrades in Q2 2022 to date). Greece, which was upgraded one notch by S&P, now has the highest long-term credit rating since March 2011.
Julio Suarez
AFME Prudential Data Report Q1 2022
31 May 2022
This report collates information on European GSIBs’ prudential capital, leverage and liquidity ratios with updated statistics as at 31 March 2022. It also illustrates the recent performance of the debt and contingent convertibles (CoCo) markets and the funding structure for banks in Europe as at May 2022. Among the main findings of this report: CET1 and T1 capital ratios decline in Q1 2022: European GSIBs end-point CET1 ratio decreased from 14.5% in 4Q21, to 13.8% in 1Q22. The decrease in CET1 ratio during the quarter was driven by RWA growth, regulatory changes implemented at the start of the year (continuation of IFRS9 implementation, irrevocable payment commitments, software capitalisation benefit reversal), and share buybacks undertaken by 6 of the 11 banks. T1 capital declined 2% QoQ, on the back of lower CET1 capital, redemption of Additional Tier 1 (AT1) instruments not offset by issuance of new AT1 securities. Lowest year-to-date CoCo issuance since 2013: European banks have issued a total of EUR 7.4bn in AT1 CoCos in 2022YtD (May). CoCo borrowing costs continued to increase in Q2 2022. Coupon rates of newly originated CoCos averaged 5.2% during Q1’22 and 6.8% in Q2’22 (as of May), a sharp increase from the average observed at the end of 2021 (3.3%). Several concurrent factors have contributed to rising borrowing costs, including higher risk premia, market volatility, and rising inflation outcomes. Capital buffers usability: The Box on pages 21-28 discusses the evolution of European GSIBs’ capital resilience during the pandemic and banks’ reluctance to reduce their buffers even after regulatory and supervisory dispensation. Banks’ surpluses against Maximum Distributable Amount (MDA) triggers rose on a weighted average basis from c3.5% of RWAs in Q1’20 to 5% in Q4’21. The evolution of capital buffers varied by banks. Banks that entered the pandemic with lower MDA surplus increased the most their capital buffers between the period Q4’19 and Q4’21. The box also reflects on possible changes to the capital buffers framework. Further detail can be also found in the AFME Position Paper (here).
Julio Suarez
ESG Finance Report Q1 2022 - European Sustainable Finance
10 May 2022
AFME is pleased to circulate its European ESG Finance quarterly data report for the first quarter of 2022. The aim of this report is to provide detailed data and analysis on the rapidly growing Sustainable Finance market in Europe. This Report contains up to date trends for the European Sustainable Finance market as at 31 March 2022, as well as a high-level regulatory and supervisory snapshot. Key highlights: European ESG bond and loan issuance in Q1’22 (€136bn) declined 32.4% year-on-year (YoY) and 27.2% quarter-on-quarter (QoQ). ESG bonds and loans include ESG-labelled bonds (proceeds-based), sustainable-linked bonds, transition bonds, green-linked loans and sustainable-linked loans. ESG bond issuance represented 14.1% of total European bond issuance during Q1’22, a lower proportion from 19.5% in 2021FY. Market conditions have been unfavourable for primary issuance. The absence of large jumbo ESG deals from the EU Commission and other sovereigns also contributed to the YoY decline. The sustainable-linked bond market was the exception in the annual ESG contraction, with a significant 4.4x YoY increase and +26.5% QoQ. Carbon prices: European Union Allowance (EuA) price per metric tonne finalised Q1’22 at €78/Tn, around the same level observed at the end of 2021. This, however, masks the significant fluctuation observed during the quarter, as carbon have prices fluctuated from €97 in early February to €55 in mid-March. During the first months of Q2’22, carbon prices have increased from its initial losses in the early days of the Russian invasion of Ukraine. A similar volatility was observed in the UK, NZ and China ETS. EU and UK forward curves continue to anticipate long-term price increases. Global ESG Funds totaled $7tn as of Q1’22, a $0.8tn decrease from $7.8tn in Q4’21. All ESG Fund asset classes declined during the quarter, except for Commodity funds, which saw a 44% QoQ increase. The quarterly decline was predominantly driven by valuation losses. Net outflows from ESG funds totalled $20bn in Q1’22, or about 2% of the QoQ absolute variation in Global ESG funds. ESG price premia: spreads of corporate ESG bonds against non-sustainable benchmarks have marginally widened in 2022YtD. ESG premia, however, continues to fluctuate between 1 to 2 bps and has not reached the levels observed in 2020. Regulatory update: We present a selective list of upcoming European initiatives for the year 2022.
Julio Suarez
AFME Equity Primary Markets and Trading Report - Q1 2022
27 Apr 2022
AFME is pleased to circulate itsEquity Primary Markets and Trading Report for the first quarter of 2022 (Q1 2022). The report provides an update on the performance of the equity market in Europe in activities such as primary issuance, Mergers and Acquisitions (M&A), equity liquidity structure, and market valuations. Key findings: Equity underwriting on European exchanges declined 75% in Q1’22 compared to the same quarter of 2021. All forms of equity capital raising declined during the quarter. IPO activity was exceptionally weak, with a 91% decline compared to Q1’21. SPAC IPOs reached €0.8bn in Q1’22, representing 40% of total IPO volume (11% in 2021, 3% in 2020). The ongoing geopolitical tensions in Eastern Europe have generated stress on markets which may have prevented the continuation of a sequence of robust quarters for European equity capital raising. Prior to the Russian invasion of Ukraine, markets were already dealing with a number of negative factors, such as surging inflation, supply chain issues, and ongoing risks related to the COVID pandemic, which were affecting primary issuance and demand. Most recently, in April 2022, equity issuance has slightly recovered accumulating €9.3bn in proceeds during the month, almost exclusively from secondary offerings. Completed Mergers and Acquisitions (M&A) in Q1’22 exhibited a declined when measured as announced value (-29% YoY) and when measured as completed value (-5% YoY). De-SPACS represented 5% of the total M&A value announced during Q1’22, around the same proportion observed during 2021FY. 91% of the announced SPAC acquisitions were De-SPACs of US-headquartered SPACs. Average daily equity trading on European main markets and MTFs stood at €107.6bn in Q1’22, 18% above the observed in Q1’21. Double Volume Cap (DVC) update: The number of instruments suspended under the DVC has recently increased to 838 (644 in January 2022) with 62 new suspensions identified only in April 2022. European equity trading mix: According to BigXYT data, on-venue trading represented 77% of the total addressable liquidity in Q1’22. Volume traded off-venues, on systematic internalisers and pure OTC, represent the remaining 23% of the volume of the total addressable liquidity. The proportion of on-venue trading relative to total addressable liquidity has increased in the course of the year. This is likely due to market participants seeking immediacy of execution (as opposed to minimal price impact) during periods of heightened volatility.
Julio Suarez
Government Bond Data Report Q4 2021 and Full Year 2021
24 Mar 2022
This report provides a comprehensive data source with updated statistics on the Government bond primary and secondary markets in Europe (EU+UK). Report highlights include: European sovereign bond issuance continues above pre-pandemic levels: in 2021, European sovereign bond issuance, including issuance from EU Member States, the UK and the European Commission, accumulated EUR 3362.3 bn in proceeds, 8.3% below 2020FY but 41.9% above 2019FY. In Q4 2021, EU Member State and UK bonds and bills issuance accumulated EUR 624 bn, which represents a decrease of 19.4% (QoQ) compared to 3Q21, but an increase of 1.3% (YoY) compared to 4Q20. In 2021FY, European government bond trading increased 0.2% compared to 2020, but was up 8.7% compared to 2019, according to MarketAxess. During Q4 2021, EU quarterly traded volumes increased 4.7% (QoQ) and 6.4% (YoY). Outstanding amount of EU ESG government bonds surpassed EUR 240.0 bn during 4Q21 of which EUR 28.0 bn in green bonds and EUR 0.6 bn in sustainable bonds were issued. Volumes were driven primarily by the European Commission (EUR 12.0 bn), the UK (EUR 7.7 bn), Italy (EUR 5.0 bn) and Germany (EUR 3.0 bn), which contributed to outstanding volumes of European green government bonds increasing to EUR 147.8 bn. Net loss of 7 primary dealers in Europe during June 2021-January 2022. There were 13 exits and 6 entries of banks to the European Primary Dealer system during this period, affecting sovereign debt markets in 11 countries and also the European Commission Primary Dealer Network (EU PDN). Market-implied Eurozone inflation expectations spiked following ongoing geopolitical tensions while inflation expectations inverted with 1Y inflation expectations exceeding both 5Y and 10Y. Eurozone inflation expectations continued to rise in 4Q21 andrecently spiked during 1Q22 due to the increased level of economic uncertainty as a result of the ongoing conflict in Eastern Europe. During 4Q21 there were 2 long-term credit rating upgrades for European countries and no downgrades. This follows 1 upgrade and no downgrades in 1Q21, 1 upgrade and no downgrades in 2Q21, 3 upgrades and no downgrades in 3Q21, bringing the 2021 full year total to 7 upgrades and no downgrades.
Julio Suarez
AFME Prudential Data Report Q4 2021 and Full Year 2021
21 Mar 2022
This report collates information on European GSIBs’ prudential capital, leverage and liquidity ratios with updated statistics as at 31 December 2021. It also illustrates the recent performance of the debt and contingent convertibles (CoCo) markets and the funding structure for banks in Europe as at March 2022. Among the main findings of this report: CET1, T1, TLAC capital ratios increased in 2021: European GSIBs end-point CET1 ratio increased from 14.40% in 4Q20, to 14.48% in 4Q21. The 8bps increase in CET1 ratio was driven by earnings retention, which contributed 80bps, offset by growth in RWAs (predominantly credit risk RWAs) and other bank specific factors contributing to CET1 ratio by negative 35bps and 37bps respectively. Other bank specific factors include share buybacks and regulatory amendments (including reduction in IFRS9 relief and capital treatment of software). CoCo borrowing costs increased in Q1 2022: Coupon rates of newly originated CoCos averaged 4.3% during 2021, which represented a decline from 5.1% in 2020FY. Most recently, during the first quarter of 2022, borrowing costs have increased with coupon rates rising to an average of 4.6% on the back of market volatility and higher risk premia, likely due to the ongoing geopolitical tensions and rising inflation expectations in the UK and the euro area. Supervisory Treatment of Third Country Branches (TCBs): The Box on pages 21-26 discusses the European Commission’s CRD legislative proposal as it relates to the supervisory framework of TCBs in the EU. Third country institutions undertake a significant proportion of their activities in the EU, around 40% or €610 bn, through branches. This is, however, significantly lower than the €890 bn of business which is undertaken through subsidiaries. Likewise, EU headquartered banks make extensive use of branches, often with very significant balance sheets to access third countries. According to banks’ Pillar 3 disclosures, EU banks have approximately €3trillion of assets through their overseas branches and subsidiaries. There are a number of areas that legislators must consider carefully from the CRDVI proposal, including branch liquidity standards; reporting requirements; authorisation requirements; the calculation of risk thresholds; and, the expected supervisory framework.
Julio Suarez
AFME Securitisation Data Report Q4 2021 and 2021 Full Year
15 Mar 2022
AFME is pleased to circulate its Q4 2021 and 2021 FY Securitisation Data Report. Main findings: In 2021FY, EUR 233.1bn of securitised product was issued in Europe, an increase of 17.6% from the EUR 198.2bn issued in 2020. Of the EUR 233.1bn issued during 2021FY, EUR 126.0bn was placed, representing 54.1% of the total, compared to EUR 81.8bn placed in 2020 representing 41.3% of the total. The increase in placed issuance during 2021FY has been driven primarily by non-STS growth in primary issuance of CLOs, which increased 97.7% year-on-year. In Q4 2021, EUR 100.2bn of securitised product was issued in Europe, an increase of 110.5% from Q3 2021 and an increase of 55.8% from Q4 2020. Of the EUR 100.2bn issued, EUR 46.8bn was placed, representing 46.7% of the total, compared to the 48.5% of issuance in Q3 2021 and 32.7% of issuance in Q4 2020. STS issuance: Year-on-year, STS issuance decreased 20.0% to EUR 62.6bn during 2021FY, representing the lowest annual issuance volume of STS securities since the regime was brought into force at the start of 2019. Overall outstanding volumes (ex-CLOs) remained stable, increasing 0.01% YoY to EUR 992.9bn at the end of Q4 2021. While there was a reduction in primary STS issuance during 2021FY, this was offset by new issuance of SME securitisation and CDO/CLOs, which increased 278.7% (YoY) and 97.7% (YoY) respectively during 2021FY, driven by high volumes issued during 4Q21. Credit Quality: Performance of European securitisations remain robust throughout the pandemic with upgrades outnumbering downgrades by almost 6:1 during Q4 2021 and by almost 4:1 during 2021FY