The Report contains European leveraged finance market trends for the third quarter of 2021, which includes issuance and credit performance figures for the high yield and leveraged loan markets.   

Key highlights:

• European leveraged finance issuance (leveraged loans and high yield bonds) accumulated €83.6 billion in proceeds in 3Q’21, a 31.4% decrease from €120 billion in 2Q’21, but a 55% increase from €53.9 billion in 3Q’20. 
• Primary high yield bond issuance totalled €29.8 billion on 68 deals in 3Q’21, a 38.9% decrease from €48.8 billion on 117 deals in 2Q’21 and a 21% increase from €24.7 billion on 61 deals in 3Q’20.

The proportion of USD-denominated issuance increased to 36.1% of all issuance in 3Q’21, from 26.6% in 2Q’21 and from 13.5% in 3Q’20. 

• Leveraged loan issuance, including first lien, second lien, and mezzanine financing, totalled €53.8 billion in 3Q’21, down 24.6% from €71.3 billion in 2Q’21 but up 84.2% from €29.2 billion in 3Q’20.

Refinancing/Repayment of Debt was the largest use of proceeds in 3Q’21 with €24.9 billion, followed by LBO/MBO with €16.5 billion and acquisitions with €9.3 billion.

According to Covenant Review, 53% of all leveraged loan deals reviewed in 3Q’21 contained an ESG feature, compared to 57% of all deals reviewed in 2Q’21.

According to Reorg, all of the European leverage loan deals examined in 3Q’21 were covenant-lite containing only a springing Revolving Credit Facility (RCF) leverage maintenance covenant.

• Credit quality:  S&P reported the trailing 12-month speculative-grade bond default rate at 3.4% a decrease from 5.3% in December 2020 and from 4.3% in September 2020. Moody’s reported the trailing 12-month speculative-grade default rate at 2.4% in September 2021, down from 5.0% in December 2020 and from 3.9% in September 2020.

Fitch reported a decrease in European Leveraged Loan default rates to 2.7% in September 2021 from 4.58% in December 2020 (when measured by deal value).

2 bond-related defaults were reported in the third quarter of 2021 by Standard and Poor’s and Moody’s. Distressed exchange was the reason for both defaults. 

According to S&P, in 3Q’21 upgrades exceeded downgrades in Europe (32 upgrades to 13 downgrades), a better ratio than 35 upgrades to 32 downgrades in 2Q’21. According to Moody’s, in 3Q’21 bond downgrades exceeded upgrades in Europe (9 upgrades to 17  downgrades), a worse ratio than 20 upgrades to 10 downgrades in 2Q’21.