European high-yield market overtakes US for first time
LONDON, Aug 7 (IFR) - Issuance of high-yield debt in Europe outstripped US volumes for the first time in 2014, helped by European banks junior debt issuance, M&A financing and first-time borrowers, Fitch said in a report published on Thursday.
Year-to-date issuance out of Europe has hit EUR113bn, representing a 34% year-on-year growth, as a flurry of companies tapped the junk bond market for the first time, while veteran high-yield issuers brought jumbo refinancing trades to lock in all-time low yields.
The market also benefited from a surge in M&A-related issuance, including Altice and Numericable's EUR12bn-equivalent deal, the largest ever high-yield bond package sold on either side of the Atlantic.
The ratings agency also includes high-yield debt from financials as well as corporates in its figures, and a key driver of the increase was the large number of European banks looking to bolster their balance sheets with deeply subordinated capital deals. Junior bond issuance from banks increased nearly four times on the previous year in this time, according to Fitch.
Issuance out of peripheral Europe also ballooned, with EUR28bn of new deals out of Italy and Spain, a more than threefold increase on volumes in first half of 2013.
High-yield has outperformed other areas of credit throughout much of 2014, but is entering August on a bit of sour note, as July saw total negative returns in Europe for the first time in over a year.
Despite this, Fitch believes that the outlook for European high-yield is still compelling as long as operating cashflows at businesses remain stable to improving.
The ratings agency also states that many committed high-yield investors will welcome a correction, as it will increase the premium on new issues and better reward good credit selection. (Reporting by Robert Smith; Editing by Philip Wright)