Dec 19 - European high-yield bond issuance hit a record
EUR60.3bn in 2012, up 47% over last year, Fitch Ratings says. Strong total
returns and improving risk-adjusted pricing stoked demand while record low
coupons for some issuers ensured supply.
A benign default rate environment benefitted risk-adjusted pricing in European
high-yield (EHY) after summer volatility, despite the record low yields.
Defaults fell to 1.2% at the end of the third quarter, well below the historic
average of 4.7%, according to the Fitch trailing 12- month HY Default Index.
Total return performance was the highest since 2009 and has been a major draw
for investors since the start of 2012. This is reflected in record net new fund
inflows of EUR7bn, according to data from Lipper. De-leveraging in the banking
system also continues to force borrowers away from the loan market and towards
EHY bonds generated total returns of 26.2% according to the Bank of America
Merrill Lynch Euro High Yield index, 1.7 times the rate for US high yield bonds
and higher than the 23.8% recorded for emerging market bonds. While returns in
2013 may not match those for 2012, outstanding high yield bonds benefit from
relatively strong credit quality, typically rated B+ and higher. Consequently,
while the default rate may rise, it is likely to remain below the historical
Issuers have benefitted from record low coupons for bonds in the 'BB' category,
which comprise two-thirds (66.2%) of the EHY market. Companies continue to issue
in strength during the closing weeks of the year as conditions remain favourable
and as they seek to pre-empt additional economic and policy uncertainties in
2013. The EUR60.3bn figure includes bonds issued from developed market
non-financial companies for the year to 14 December.
The EHY universe of outstanding bonds, including from financial issuers, has
ballooned by 42% since the end of 2011 to EUR472bn thanks to a combination of
record new issuance and the downgrading of some financial issuers to
non-investment grade. The share of outstanding financial bonds in the EHY market
rose to 38.8% in the year-to-date from 32.1% at the end of 2011.
The latest edition of Fitch Ratings' quarterly European High-Yield Chart Book
will be published in January 2013, illustrating trends in high-yield bond
issuance, maturities, default rates, fund flows and relative performance, as
well as secondary market risk-adjusted pricing. For the October 2012 report,
please visit www.fitchratings.com or see the related research.