The Report contains European leveraged finance market trends for the fourth 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 €87.7 billion in proceeds in 4Q’21, a 1.3% increase from €86.6 billion in 3Q’21, but a 40.5% increase from €62.4 billion in 4Q’20. 
• Primary high yield bond issuance totaled €39.3 billion on 90 deals in 4Q’21, a 27.9% increase from €30.7 billion on 71 deals in 3Q’21 and a 14.7% increase from €34.3 billion on 87 deals in 4Q’20.
  The proportion of USD-denominated issuance decreased to 28.8% of all issuance in 4Q’21, down from 35% in 3Q’21 but up from 21.3% in 4Q’20.

The leading use of proceeds for high yield bonds issuance in 4Q’21 was general corporate purposes, at €13.2 billion, which was lower than €15.3 billion in 3Q’21 and than €26 billion in 4Q’20.

• Preliminary data for the first two months of 2022 indicates that high yield bond issuance decelerated to a €15bn supply in January and February 2022, the slowest start of the year since 2016.

• Leveraged loan issuance, including first lien, second lien, and mezzanine financing, totaled €48.4 billion on 117 tranches in 4Q’21, down 13.4% from €55.8 billion on 145 tranches in 3Q’21 but up 71.9% from €28.1 billion on 102 tranches in 4Q’20. 

25.5% of deals financed in 4Q’21 were issued for refinancing and/or repayment of debt, down from 46.5% in 3Q’21 and slightly up from 25.1% in 4Q’20. LBO/MBO was the second largest use of proceeds in 4Q’21 with €17.4 billion, followed by Acquisitions with €15.7 billion.

According to Reorg, all of the European leverage loan deals analysed in 4Q’21 were covenant-lite. 

According to Covenant Review, 68% of all leveraged loan deals reviewed as of 15th of December 2021 contained an ESG feature, compared to 53% of all deals reviewed in 3Q’21.

• Credit quality:  as of December 2021, S&P reported the trailing 12-month speculative-grade bond default rate at 1.8% a decrease from 5.3% in December 2020. Moody’s reported the trailing 12-month speculative-grade default rate at 1.22% in December 2021, down from 5.0% in December 2020.

Fitch reported a decrease in European Leveraged Loan default rates (by value) to 1.9% in December 2021 from 4.92% in December 2020.

There were no reported defaults in the fourth quarter of 2021 by Standard and Poor’s and Moody’s.

According to Moody’s, in 4Q’21 bond upgrades exceeded downgrades in Europe (17 upgrades to 14 downgrades). This is a better ratio than 9 upgrades to 17 downgrades in 3Q’21 and compared to 30 downgrades to 12 upgrades in 4Q’20. According to S&P, in 4Q’21 upgrades exceeded downgrades in Europe (39 upgrades to 21 downgrades), a worse ratio than 13 downgrades to 32 upgrades in 3Q’21 but a better ratio than 43 downgrades to 17 upgrades in 4Q’20.