* Strengthening European market could see primary rush
* Institutional investors still have cash to put to work
* Companies that held off in July ready to return
By Robert Smith
LONDON, Aug 22 (IFR) - Reports of the high-yield market's
death have been greatly exaggerated, with professionals across
the market bracing for a rush of new deals in Europe if
conditions continue to recover.
The European high-yield market had an incredible run in the
twelve months to June, seeing both record volumes in primary and
consistently positive returns, but at the end of July the asset
class was battered by outflows on both sides of the Atlantic.
The Barclays European HY index posted negative returns in
July, the first negative month since June 2013 when the Federal
Reserve's discussions of QE tapering rocked fixed income.
But while the European primary market is languishing in its
customary August break, behind the scenes bankers are priming
deals for September as the asset class shows tentative signs of
"The pipeline for September is looking quite healthy but a
lot of issues are opportunistic and subject to market
conditions," said Henrik Johnsson, head of EMEA high-yield and
loan capital markets at Deutsche Bank.
"Although there is currently a lack of data-points on the
primary side due to the August slowdown, the secondary market
feels healthier and the US is already recovering."
The iTraxx Crossover index blew out past 300bp on August 8,
its widest point since March, but has since tightened more than
50bp to less than 250bp.
Deals priced at the end of July are also catching a strong
bid in the secondary market. Lindorff's LBO bonds, the last
high-yield deal priced in Europe, are now bid at a cash price of
105 on the euro secured bonds and 104.5 on the unsecured. Pizza
Express's LBO bonds are also bid above par on both tranches,
bucking the trend of underperforming sterling deals.
With the market regaining its lost momentum, investors are
also bracing themselves for a quick pace next month.
"We've heard that the docket for September is pretty full,"
said Jon Brager, a senior credit analyst at Hermes Fund
Managers. "Once the fund flows stabilise and people get back to
their desks I have a feeling you could see a barrage deals in
the first week."
Fund flows are the one piece of puzzle missing in the
European high-yield recovery so far. While US high-yield funds
have now seen two consecutive weeks of inflows, European funds
monitored by JP Morgan registered a hefty EUR664m outflow in the
week ending August 13.
"The big outflow number you saw earlier this week seems to
be a lagging indicator as we're not getting the sense that
outflows are a theme on the buyside at the moment," said
Johnsson is not the only one sanguine about flows. One head
of European high-yield bond syndicate pointed out that Europe is
less sensitive to retail flows than the US, and that the big
institutional funds are still very long cash.
"They need to put it to work somewhere, and we've already
got to the point where some names are wide enough that it's made
sense to buy again," he added.
AHEAD OF THE PACK
While market veterans are poised for a rebound, it would be
difficult for the pace to match July's. The rate of supply was
relentless, with 31 tranches in European currencies from 24
issuers, half of which were debuts in the European market.
The month would have been even busier without the bout of
volatility at the end. Aside from two pulled deals from Winoa
and EM&F, a number of companies pre-marketed bonds that they
then held off from officially launching.
"There were a lot of companies hoping to come before the
summer break so while it's hard to read too much into a few
days, if things continue to be constructive we're going to see a
pretty fast start to September," said the syndicate banker.
Bankers are understood to have pitched potential deals for a
number of trickier credits to select investors, including
previously restructured firms such as Greek telecoms group Wind
Hellas and Belgian concrete maker Consolis.
These deals could surface publicly if the market strengthens
in September, and a number of companies are already getting
their documentation in order to try to get ahead of the pack.
"It's one of the busiest Augusts I can remember," said one
senior high-yield bond lawyer.
"Deal time frames have also shortened. You might not hear
from an issuer for months and then suddenly they want the
documents to send off to the ratings agencies in a matter of
(Reporting by Robert Smith, Editing by Helene Durand and Julian