AFME European High Yield and Leveraged Loan Report Q4 2022 | AFME

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Data Research
AFME European High Yield and Leveraged Loan Report Q4 2022
14 Mar 2023
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Author Julio Suarez Director
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The Report contains European leveraged finance market trends for the fourth quarter of 2022, which includes issuance and credit performance figures for the high yield and leveraged loan markets. 

Key highlights:

  • European leveraged finance issuance accumulated €37.4 billion in proceeds in 4Q'22, a 31.4% quarter-on-quarter (QoQ) decrease and a 57.8% year-on-year (YoY) decrease.
  • High yield bond issuance totalled €10.7 billion on 28 deals in 4Q'22, a 114% increase from €5.0 billion in 3Q’22 but a 73.0% decrease from €39.8 billion in 4Q’21.
    • The proportion of USD-denominated issuance decreased to 5.2% of all issuances in 4Q'22, down from 9.3% in 3Q’22 and from 28.8% in 4Q’21.
    • The leading use of proceeds for high yield bond issuance in 4Q'22 was general corporate purposes, at €6.5 billion, which was higher than €3.1 billion in 3Q’21 but lower than €13.2 billion in 4Q’21.
    • Preliminary data for 1Q’23 indicates that high yield bond issuance continues below its long-term average, accumulating €10 billion in proceeds in the first two months of 2023 (€16 billion in the first two months of 2022, €28 billion in 2021, and €29 billion in 2020).
  • Leveraged loan issuance, including first lien, second lien, and mezzanine financing, totaled €26.6 billion in 4Q'22, down 46.1% from €49.4 billion in 3Q’22 and down 45.5% from €48.8 billion in 4Q’21
    • 63.2% of deals financed in 4Q'22 were issued for refinancing and/or repayment of debt, up from 22.5% in 3Q’22, and from 25.5% in 4Q’21. General Corporate Purposes was the second largest use of proceeds in 4Q'22 with €3.6 billion, followed by Acquisitions with €2.7 billion.
  • Credit quality: S&P reported the trailing 12-month speculative-grade bond default rate at 2.2% in December 2022, an increase from 1.8% in December 2021. Moody's reported the speculative-grade default rate at 2.8% in December 2022, up from 1.2% in December 2021.
    • There were 7 bond defaults reported in the 4Q’22 by Standard and Poor’s and Moody’s. The reasons were distressed exchange, missed principal payments and bankruptcy.
    • Fitch reported an increase in European Leveraged Loan default rates (by value) to 0.6% in December 2022 from 0.4% in June 2022
    • According to Reorg, nearly all the European leveraged loan deals examined in 2022 were covenant-lite