The Report contains European leveraged finance market trends for the second quarter of 2020, 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 €70.0 billion in proceeds in 2Q’20, a 25.9% decrease from €94.4 billion in 1Q’20 but an increase from €63.4 billion in 2Q’19. This quarterly decline was driven mainly by a decrease in leveraged loan issuance.

• Primary high yield bond issuance totaled €24.2 billion on 48 deals in 2Q’20, a 16.9% decrease from €29.1 billion on 71 deals in 1Q’20 and a 17.0% decrease from €29.2 billion on 71 deals in 2Q’19.
  
  The proportion of USD-denominated issuance increased to 34.1% of all issuance in 2Q’20, up from 24.2% in 1Q’20 and from 28.6% in 2Q’19.

The leading use of proceeds for high yield bonds issuance in 2Q’20 was repayment/refinancing of debt with €15.0 billion, which was up 40% from €10.7 billion in 1Q’20 and up from €7.4 billion in 2Q’19.

• Leveraged loan issuance, including first lien, second lien, and mezzanine financing, totaled €45.7 billion on 64 deals in 2Q’20, down 29.9% from €65.2 billion on 83 deals in 1Q’20 but a 33.8% increase from €34.2 billion on 76 deals in 1Q’20
  
  General corporate purposes were the largest use of proceeds in 2Q’20 with €18.9 billion, followed by refinancing/repayment of debt with €11.5 billion, and LBO/MBO with €6.9 billion or 15.1% of the total.
  
  Pricing spreads for institutional loans widened by 76 basis points (bps) q-o-q and by 1 bps y-o-y. Spreads for pro rata loans tightened by 3 bps q-o-q and by 87 bps y-o-y.
• Credit quality:  As of June 2020, S&P reported the trailing 12-month speculative-grade default rate at 3.4%, an increase from 2.4% in March 2020 and from 2.3% in June 2019. Moody’s reported the trailing 12-month speculative-grade default rate at 2.8% in June 2020, up from 1.9% in March 2020 and from 1.2% in June 2019.

Fitch also reported an increase in leverage loan default rates to 6.4% in June 2020 (including c* and cc* rated issuers as if those had already defaulted).

17 bond-related defaults were reported in the second quarter of 2020 by Standard and Poor’s and Moody’s, 15 in developed market Europe and two in emerging market Europe. Missed interest payment was the most frequent reason for default.

According to Moody’s, in 2Q’20 downgrades exceeded upgrades in Europe (123 downgrades to 5 upgrades), a worse ratio than 78 downgrades to 4 upgrades in 1Q’20 and than 40 downgrades to 16 upgrades in 2Q’19. S&P also reported a deterioration in the downgrades-upgrades ratio. According to S&P, in 2Q’20 downgrades exceeded upgrades in Europe (152 downgrades to 3 upgrades), a worse ratio than 97 downgrades to 9 upgrades in 1Q’20 and than 25 downgrades to 28 upgrades in 2Q’19.