Jan 28 - After a record-setting third quarter, the U.S. high yield bond market continued its record pace into the fourth quarter as noted in Fitch Ratings’ new ‘U.S. Leveraged Market Quarterly’ report. Fourth quarter leveraged loan and collateralized loan obligation (CLO) issuance more than doubled year-over-year.
Credit quality among most U.S. companies remains stable; however, concerns grow as downgrades outpaced upgrades for the second consecutive quarter. The downgrades were heavily weighted in the retail and energy and related sectors as Best Buy Co., Inc., J.C. Penney Corporation, Inc., and Energy Future Holdings Corp. were all downgraded.
Seven issuers defaulted during the quarter totaling $7.2 billion, bringing the 12-month U.S. high yield default rate up to 1.9% at quarter end from 1.5% at the end of 2011.
U.S. high yield bond issuance was less than a percentage point away from another quarterly issuance record, ending at $91.9 billion. The high yield market ended 2012 with $315 billion, beating the previous annual issuance record set in 2010 by approximately 25%. The Bank of America Merrill Lynch U.S. High Yield Master II Index returned 3.2% for the fourth quarter, bringing the full-year 2012 return to 15.6%, the third year of double-digit returns out of the last four.
For 2012, leveraged loan issuance was up 17% versus last year. Covenant-lite and dividend recap issuance increased noticeably in the fourth quarter, reaching levels last seen in 2007. Secondary loan bids crept higher late in the year, hitting a 2012 high in December. Retail fund flow took in 29 straight weeks of inflows at end 2012. For the year, retail loan funds took in over $11.6 billion.
Forty-two CLOs totaling approximately $21.8 billion priced during the fourth quarter, bringing 2012 issuance to approximately $51.9 billion. Fourth quarter issuance was the most active for issuance in 2012.
This quarter, Fitch’s ‘U.S. Leveraged Market Quarterly’ report also highlights the 2013 U.S. corporate outlook and recent developments in the U.S. food, beverage, restaurant and consumer products sector.
The full report ‘U.S. Leveraged Finance Quarterly’ is available at www.fitchratings.com/sectors/Corporate Finance/Leveraged Finance.
For more information, visit: www.fitchratings.com/usleveragedfinance.