(Repeat for additional subscribers)
May 28 (The following statement was released by the rating agency)
A slim majority of senior European credit investors favour regulatory intervention to
prevent a bubble in the European high-yield bond and loan markets, according to Fitch Ratings'
latest quarterly investor survey. The heightened concern comes as monthly European high-yield
issuance volumes hit an all-time record.
In total, 51% of respondents agreed that European regulators should step in to
calm markets, as the Federal Reserve and the Office of the Comptroller of the
Currency are attempting in the US leveraged loan market. Most of those in favour
of intervention said it should be limited to "skin-in-the-game" rules for
underwriters, but 22% of respondents wanted a tougher response, including
explicit limits on leverage and underwriting standards.
We believe this result reflects increasing anxiety among investors that too much
money is chasing too few income-producing assets. Investors feel they have
little choice but to invest in whatever comes to market, despite the continuing
fall in yields and coupons.
Declining returns are accompanied by weaker credit quality among new issues,
including higher leverage, increased subordination and looser lending terms.
This fall in new-issue credit quality underlines our view that losses from the
next leveraged finance default cycle may be significantly greater than in
previous cycles, as fiscal and monetary support will be more limited and issuers
shift from core bank relationships to capital market funding options.
The increasing concern among high yield investors is visible in other survey
responses. Investment-grade financials took over as the most favoured marginal
investment choice after a 15-month run for the high-yield sector, and 51% of
respondents said they now believe that high yield is overvalued.
Nearly half of respondents expect high-yield issuance volumes to continue
rising, against 7% that expect a decline. May is on course to be the
highest-volume month ever following Numericable's record bond offering, which
was issued at the start of the month. It will also be close to the record for
the number of deals.
Fitch's 2Q14 survey closed on 16 May. It represents the views of managers of an
estimated EUR5.3trn of fixed-income assets. The full report will be published