European Leveraged Insights

05 February 2019

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High yield bond and leveraged loan markets encounter headwinds in 4Q18

The European high yield bond and leveraged loan markets encountered headwinds in the latter half of the fourth quarter due to a pick-up in global financial market volatility. In turn, 2018 ended on a quiet note in terms of bond and loan issuance, with the markets hampered by increased risk aversion amid a jump in volatility across asset classes, more investor pushback and a drop in secondary market levels. 

High yield bond issuance fell to EUR 9.1bn in 4Q18 with issuers facing more difficult market conditions as secondary market volatility climbed. The average secondary market bond price declined in 4Q18 to 96.25 from the 101 area. In turn, the change in market sentiment caused several deals to be postponed as investors were more selective and borrowers held off on braving the market elements. Some of the deals pulled from the market include Cognita, which cancelled a planned bond deal and increased the size of its loan and equity contribution. Dreams, meanwhile, pulled a EUR 175m senior secured bond offering with which it had planned to repay vendor loans owed to previous shareholders.

The loan market was not impacted to the same extent as the bond market but was not immune, either. Hurtigruten cancelled its planned EUR 575m repricing, though it did price a EUR 80m add-on. VistraGroup cancelled an incremental first lien and second lien loan offering backing a dividend recap. Also, Vue International pulled its planned GBP 833m-equivalent refinancing and acquisition facility.

After starting the year highly bid in the secondary market, loan prices weakened at a couple of different times this year: first around the middle of the year on the back of improved loan supply, before rebounding in 3Q18, and again in the fourth quarter, amid increased financial market volatility and investor caution.