2013 was a record year for European high-yield, according to debt advisory business Marlborough Partners: total issuance was €70.4 billion, substantially outstripping the previous record of €44.4 billion in 2010.
Financial sponsors accounted for €25.7 billion of last year’s high-yield total – also substantially ahead of the previous record of €14.5 billion in 2012. €6.4 billion of this went to finance leveraged buyouts, across 13 deals.
And as the market strengthened, so too did investor appetite for smaller deals – which meant high-yield bonds were more accessible than ever in the mid-market, according to Marlborough. In 2013, there were 27 deals of below €200 million, of which 10 were below €150 million.
Marlborough ascribed this surge in high-yield to “a sustained period of macroeconomic stability and a yield-hungry investor base”.
High-yield was often used to refinance old loans, according to David Whiteley, a managing director covering leveraged loans and high yield capital markets at Lloyds Banking Group. “Yields on bonds are coming in quite sharply. So if you can replace a loan [that has] covenants on it with a high-yield bond that hasn’t, that can be quite attractive.”
This year, Marlborough expects to see the first European cov-lite loans in euros and sterling, plus more downward pressure on margins and fees.
Of course, it wasn’t just the high-yield market that was hot in 2013. Last year was also the strongest post credit crunch year (by some distance) for leveraged loans issuance, which hit €67.4 billion, up 136 percent on 2012. Refinancing and dividend recaps accounted for 58 percent of that total.
All of which should be good news for any GPs looking to finance new deals in the next few months. But it’s also starting to make a few people a bit nervous, especially given the relative lack of deals currently in the market. “I think deals are getting a little bit over-leveraged and a little bit under-priced,” warns Whiteley. “It would be great if there was some more M&A activity, [so] supply and demand would be a bit more in balance.”