The Report contains European leveraged finance market trends for the first quarter of 2021, 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 €107.7 billion in proceeds in 1Q’21, a 73.8% increase from €62.0 billion in 4Q’20 and a 14.1% increase from €94.4 billion in 1Q’20. This quarterly growth was driven predominantly by an increase in leveraged loan issuance.
• Primary high yield bond issuance totalled €41.6 billion on 93 deals in 1Q’21, a 24.4% increase from €33.4 billion on 83 deals in 4Q’20 and a 42.5% increase from €29.2 billion on 71 deals in 1Q’20.

The proportion of USD-denominated issuance decreased to 17.1% of all issuance in 1Q’21, from 21.0% in 4Q’20 and from 24.2% in 1Q’20.

The leading use of proceeds for high yield bonds issuance in 1Q’21 was general corporate purposes with €32.3 billion, which was up 26.8% from €25.5 billion in 4Q’20 and up 145.5% from €13.2 billion in 1Q’20.

• Leveraged loan issuance, including first lien, second lien, and mezzanine financing, totalled €66.1 billion on 143 deals in 1Q’21, up 131.6% from €28.5 billion on 100 deals in 4Q’20 and up 1.4% from €65.2 billion on 83 deals in 1Q’20.
  
  Refinancing/Repayment of Debt was the largest use of proceeds in 1Q’21 with €44.4 billion, followed by LBO/MBO of debt with €13.3 billion and acquisitions with €6.5 billion.

According to Reorg, the vast majority of 1Q’21 European leverage loan deals (97%) were covenant-lite. The remaining 3% of 1Q’21 deals were covenant-loose, containing a leverage maintenance.

According to Covenant Review, 36% of all leveraged loan deals reviewed in 1Q’21 contained an ESG feature, compared to just 4.9% of all deals reviewed in 2020FY.

• Credit quality:  S&P reported the trailing 12-month speculative-grade bond default rate at 5.9% in March 2021, an increase from 5.3% in December 2020. Moody’s reported the trailing 12-month speculative-grade default rate at 4.7% in March 2021, down from 4.9% in December 2020.

Fitch reported an increase in European Leveraged Loan default rates at 5.1% in March 2021 (including c* and cc* rated issuers as if those had already defaulted), an increase of 0.2% since December 2020.

6 bond-related defaults were reported in 1Q’21 by S&P and Moody’s, all in developed market Europe. Distressed exchange was the most frequent reason for default.

According to Moody’s, in 1Q’21 upgrades exceeded downgrades in Europe (35 upgrades to 13 downgrades). This is an improvement on 30 downgrades to 10 upgrades in 4Q’20 and 78 downgrades to 4 upgrades in 1Q’20. S&P also reported an improvement in the downgrades-upgrades ratio. According to S&P, in 1Q’21 downgrades exceeded upgrades in Europe (24 downgrades to 22 upgrades), a better ratio than 43 downgrades to 14 upgrades in 4Q’20 and 78 downgrades to 4 upgrades in 1Q’20.