ehya european quarterly hy and leveraged loan report · 2019-12-19 · 2 afme / ehya european...

ehya

Prepared in partnership with 2009 Q4

European High Yield & Leveraged Loan Report

Market Highlights and Commentary.......................1 1. Leveraged Finance Overview..............................3

1.1. European Leveraged Issuance by Type .............................3 1.2. European Leveraged Issuance by Percentage....................3 1.3. European Leveraged Issuance Average Deal Size.............3 1.4. European HoldCo PIK Issuance ........................................3 1.5. Bank Credit Standards.......................................................3 1.6. Factors Affecting Bank Credit Standards ..........................3 1.7. Loan Demand ....................................................................4 1.8. Factors Affecting Loan Demand .......................................4

2. Issuance –Leveraged Loans ...............................4 2.1. European Leveraged Loan Issuance By Loan Type ..........4 2.2. European Leveraged Loan Issuance by Industry Sector ....4 2.3. Forward Pipeline of Leveraged Loan Market....................4 2.4. S&P ELLI Total Institutional Loans Outstanding .............4 2.5. S&P ELLI Ratings Diversification....................................5 2.6. European Leveraged Loan Ratios......................................5 2.7. Institutional and Pro Rata Spreads.....................................5 2.8. Mezzanine Spread .............................................................5

3. Issuance –High Yield Bonds Overview ..............6 3.1. European HY Bond Issuance, Developed and Emerging

Market ..............................................................................6 3.2. European HY Bond Issuance, Sponsored vs. Corporate....6

4. Issuance – European Developed Market High Yield Bonds ..............................................................6

4.1. European Developed Market HY Bond Issuance by Currency...........................................................................6

4.2. European Developed Market HY Fixed vs. Floating Rate Bond Issuance ..................................................................6

4.3. European Developed Market HY Issuance, Sponsored vs. Corporate..........................................................................6

4.4. European Developed Market HY Bond Issuance ..............7

5. Issuance – European Emerging Market High Yield Bonds........................................................................8

5.1. European Emerging Market HY Bond Issuance................8 5.2. European Emerging Market HY Bond Issuance by

Industry ............................................................................8 5.3. European Emerging Market HY Bond Issuance by

Country of Risk ................................................................8 5.4. European Emerging Market HY Bond Issuance, Fixed

vs. Floating.......................................................................8 5.5. European Emerging Market HY Issuance, Sponsored vs

Corporate..........................................................................8 5.6. Emerging Market HY Bond Issuance................................9

6. Credit Quality........................................................10 6.1. European HY Default Rate................................................10 6.2. European Issuer Rating Actions ........................................10 6.3. European Industry Rating Actions by $ Amount...............10 6.4. European Loan Default Rate .............................................10

7. Total Return..........................................................11 7.1. European HY Bond Total Return ......................................11 7.2. European Leveraged Loan Total Return............................11 7.3. Asset Class Total Return ...................................................11

Annex........................................................................ 12 Disclaimer ................................................................ 13

1 AFME / EHYA EUROPEAN QUARTERLY HIGH YIELD AND LEVERAGED LOAN REPORT

Q4 2009

European Leveraged Credit Markets Improve in Fourth Quarter, But Future Remains Uncertain

Highlights and Market Environment Highlights • European leveraged finance issuance, which includes

leveraged loans and high yield bonds, totalled €38.6 billion in the fourth quarter of 2009, up from 24.6 billion in the prior quarter.

Market and Economic Environment • Financing conditions continued to improve in Europe,

albeit slightly. According to the January 2010 European Central Bank (ECB) bank lending survey, banks continued to report a net decrease in tightening standards to both small and large issuers, but demand for loans generally stayed flat on a net basis. Restructuring and debt issuance were cited as the greatest primary factors contributing to lower loan demand.

• Both the euro area and EU 27 GDP reported positive 0.1 growth in the fourth quarter of 2009, down slightly from revised 0.4% and 0.3% growth in the euro area and EU 27 in the third quarter.

• While there has been positive GDP growth and austerity measures may have aided outlooks for certain countries, the situation in Europe continues to remain volatile, particularly among those countries that experienced sovereign downgrades in 2009 (e.g., Greece, Spain, Ireland, etc).

Issuance Issuance: Leveraged Loans • Leveraged loan issuance, which includes first lien,

second lien, and mezzanine financing, totalled approximately €14.4 billion in the fourth quarter, for a full year issuance of approximately €53 billion, a significant decline of 35.6% from the €82.4 billion in issuance in 2008 and 77.1% from the €231.7 billion issued in 2007. Loans were predominantly first lien, whereas mezzanine financing remained anemic and second lien nonexistent.

• According to Thomson Reuters LPC, leading sectors in leveraged loan issuance in 2009 were construction (€12.2 billion), telecommunications (€6.1 billion) and retail and supermarkets (€3.0 billion). According to both S&P LCD and Dealogic, a significant number of transactions in 2009 were of the “amend-to-extend” variety, in which prior loan maturities are extended through a partial refinancing. According to Dealogic’s database, approximately 32.4% of all leveraged loan issuance in 2009 were of this transactional type. While the refinancing pipeline continues to remain a key concern in the near-term, it has been noted by Fitch Ratings that

continued amend-to-extend transactions may significantly allay such pressures.

• While the high yield markets have come back from the dead in 2009 with outsized returns and issuance, the leveraged loan markets continue to remain subdued. According to S&P LCD, the forward pipeline for loans as of the end of December 2009 was €1 billion. Although CLO issuance has tentatively returned in Europe (with approximately €13 billion of small and medium enterprise (SME) CLO issuance reported in the first two months of 2010), the continued deleveraging and investment restrictions of CLO managers, as well as constrained bank balance sheets, will continue to pose a challenge.

Issuance: European High Yield Bonds • Primary issuance returned in the fourth quarter, with high

yield bond issuance, excluding emerging market issuance, totalling €12.5 billion on 37 deals, for a total of €23.8 billion issued in full-year 2009.

• European emerging market bond issuance totalled €4.2 billion on 12 deals in the fourth quarter, up from €1.2 billion in the third quarter. Issuance was predominantly, by deal size, from the finance, food & beverage, and oil & gas sectors.

• Notable within the European high yield primary markets was the tentative return of certain structural features dormant throughout most of the crisis. Wind Acquisition’s issuance in December 2009 marks the first PIK bond issuance in the European market since Q1 2007 (Orion Cable GmbH’s €400 million PIK issuance), although Wind’s deal is PIK-only for approximately four years.

• The absence/deleveraging of the loan investor base, higher risk appetite in the capital markets, and a need for issuers to diversify funding and investor bases has aided in the return of high yield bond issuance in Europe as an alternative financing mechanism (as partly noted by the ECB bank lending surveys). The relatively high costs of bond issuance (with an average weighted fixed coupon of 8.6% and 10.5%, respectively, for both European and European emerging market bond deals in 2009) compared to floating rate loans given Euribor and LIBOR lows, however, may continue to act as a deterrent. Fitch Ratings also noted that impaired credit profiles further act as impediments for leveraged issuers to tap the capital markets.


Q4 2009

Returns & Credit Quality Returns • According to S&P’s ELLI, European leveraged loans

returned 43.8% in 2009, compared to 74.88% in European high yield, reported by Bank of America-Merrill Lynch’s EUR HY index. CCC-rated European credits in particular returned 150.0%.

• As an asset class, European high yield outperformed in 2009 nearly every asset class with the exception of distressed debt (116.7%). The strong return may have been partly technical in nature, as money flows throughout 2009 exited out of money market funds and into longer-term fixed income funds. In 2009, €56 billion in net inflows were recorded into European fixed income funds, according to EFAMA.

Credit Quality • Credit quality remains of significant concern. For the

full-year 2009, S&P reported 265 defaults globally, the highest tally since the series began. While most defaults were from the United States, 19 defaults reported from Europe, 29 if inclusive of European emerging market countries, representing 7.1% and 10.9% of global defaults respectively. Of the defaults from Europe and European emerging market countries, 48.3% (14 reported defaults) stemmed from distressed exchanges; 27.6% (8 reported defaults) from missed interest and/or principal payments, and 2 from bankruptcy and/or administration. Defaults in emerging market Europe were by banks, followed by telecommunications, whereas defaults in Europe were by bansk, high technology, and media and entertainment.

• For S&P’s Europe region, the 12-month trailing speculative grade default rate was 8.37% at the end of December 2009, higher than end-September’s 12-month trailing speculative grade default rate of 7.61%.

• Upgrades/downgrades have also been similarly affected, with record highs also seen from S&P. Within the European developed and emerging markets, 22 issuers became fallen angels in 2009 (impacting $85.6 billion of debt), largely from the auto industry (impacting $33.6 billion of debt). Six fallen angels were from emerging market Europe, including one sovereign (Republic of Latvia). Five rising stars were also recorded for 2009, two from emerging market Europe (Russia).


Q4 2009

1. Leveraged Finance Overview 1.1. European Leveraged Issuance by Type 1.2. European Leveraged Issuance by Percentage

0

50

100

150

200

250

300

Q1 Q2 Q3 Q4

2003 2004 2005 2006 2007 2008 2009 2009

€ Billions

Sources: Dealogic, Thomson Reuters LPC

European Leveraged Issuance2003 - 2009:Q4

Europe EM HY

Europe Developed HY

Leveraged Loans

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Q1 Q2 Q3 Q4

2003 2004 2005 2006 2007 2008 2009 2009

Percentage


European Leveraged Issuance2003 - 2009:Q4

Europe EM HY

Europe Developed HY

Leveraged Loans

1.3. European Leveraged Issuance Average Deal Size 1.4. European HoldCo PIK Issuance

0.00

0.20

0.40

0.60

0.80

1.00

1.20

1.40

1.60

1.80

2.00

Q1 Q2 Q3 Q4

2003 2004 2005 2006 2007 2008 2009

€ Billions


European Leveraged Issuance Average Size2003 - 2009:Q4

Leveraged Loans

Europe Developed HY

Europe EM HY

0

20

40

60

80

100

120

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

Q1 Q2 Q3 Q4

2004 2005 2006 2007 2008 2009

Number of Deals€ Billions

Source: Standard & Poor's LCD

European Holdco PIK Issuance (LTM)2004 - 2009:Q4

1.5. Bank Credit Standards1 1.6. Factors Affecting Bank Credit Standards2

-30

-20

-10

0

10

20

30

40

50

60

70

80

Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10

Net Percentage

Source: ECB

Bank Credit StandardsJan 2005- Jan 2010

SME

Large Enterprises

Overall

-5 0 5 10 15 20 25 30

Access to Market Financing

Market Financing

Competition from Non-Banks

Expectations Regarding Economic Activity

Risk on Collateral Demanded

Industry or Firm-Specific Outlook

Net Percentage

Source: ECB

Factors Affecting Bank Credit StandardsJan. 2010

Large Enterprises

SME

Overall

1 A positive net percentage number signifies tightening bank credit; a negative net percentage number signifies easing credit. 2 A positive net percentage signifies the factor contributed to tightening credit standards; a negative net percentage signifies the factor contributed to easing credit standards.


Q4 2009

1.7. Loan Demand3 1.8. Factors Affecting Loan Demand4

-50

-40

-30

-20

-10

0

10

20

30

Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10

Net Percentage

Source: ECB

Loan DemandJan 2005- Jan 2010

SME

Large Enterprises

Overall

-40 -30 -20 -10 0 10 20 30 40 50 60

Fixed Investment

M&A, Restruturing

Debt Issuance

Equity Issuance

Loans from Non-Banks

Inventorys, Working Capital

Internal Financing

Loans from Other Banks

Debt Restructuring

Net Percentage

Source: ECB

Factors Affecting Loan DemandJan. 2010

2. Issuance –Leveraged Loans

2.1. European Leveraged Loan Issuance By Loan Type5 2.2. European Leveraged Loan Issuance by Industry Sector

0

50

100

150

200

250

300

Q1 Q2 Q3 Q4

2003 2004 2005 2006 2007 2008 2009 2009

€ Billions

Source: Thomson Reuters LPC

Leveraged Loan Issuance by Loan Type2003 - 2009:Q4

Mezzanine

2nd Lien

1st Lien

0 5 10 15 20 25

AutomotiveBusiness Services

Chemicals, Plastics & RubberConstruction

Food & BeverageGeneral Manufacturing

HealthcareMedia

Oil & GasRetail & Supermarkets

ServicesShipping

TechnologyTelecommunications

TransportationUtilities

All Other

EUR Billions

Source: Thomson Reuters LPC

Leveraged Loan Issuance by Industry2009

2.3. Forward Pipeline of Leveraged Loan Market 2.4. S&P ELLI Total Institutional Loans Outstanding

0.0

20.0

40.0

60.0

80.0

100.0

120.0

Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09

€ Billions


Forward Pipeline of Leveraged Loan Market2007:Q4 - 2009:Q4

Europe

US

0.0

20.0

40.0

60.0

80.0

100.0

120.0

140.0

160.0

2003 2004 2005 2006 2007 2008 2009

€ Billions


S&P ELLI Total Institutional Loans Outstanding2005 - 2009

3 A positive net percentage signifies increased demand; a negative net percentage signifies decreased demand. 4 A positive net percentage signifies a factor that contributed to higher demand; a negative net percentage signifies a factor that contributed to lower demand. 5 Due to the discrepancies in data supply (and time of currency conversion) , this chart is not immediately comparable to other leveraged loan charts.


Q4 2009

2.5. S&P ELLI Ratings Diversification 2.6. European Leveraged Loan Ratios

0.0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1.0

2005 2006 2007 2008 2009

Percentage


S&P ELLI Ratings Diversification2005 - 2009

Other

NR

B

BB

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

Q1 Q2 Q3 Q4

2002 2003 2004 2005 2006 2007 2008 2009

xEBITDA

Source: Fitch Ratings

European Leveraged Loan Ratios2002 - 2009:Q4

All Leveraged Loans

Senior Loans (including 2nd Lien)

2.7. Institutional and Pro Rata Spreads 2.8. Mezzanine Spread

150

200

250

300

350

400

Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09

Basis Points

Source: Dealogic, AFME / EHYA, SIFMA

Institutional and Pro Rata SpreadsJan. 2005 - Dec. 2009

Institutional

Pro Rata

600

700

800

900

1000

1100

1200

1300

Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09

Basis Points

Source: Dealogic, AFME / EHYA, SIFMA

Mezzanine SpreadJan. 2005 - Dec. 2009

Mezzanine


Q4 2009

3. Issuance –High Yield Bonds Overview 3.1. European HY Bond Issuance, Developed and Emerging Market

3.2. European HY Bond Issuance, Sponsored vs. Corporate

0

5

10

15

20

25

30

35

40

45

Q1 Q2 Q3 Q4

2003 2004 2005 2006 2007 2008 2009 2009

€ Billions


European HY Issuance, Developed and Emerging Markets2003 - 2009:Q4

Europe EM HY

Europe Developed HY

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Q1 Q2 Q3 Q4

2009

Percentage

Sources: Dealogic

European HY Issuance, Sponsored vs Corporate2009:Q1 - 2009:Q4

Europe Corporate

Europe LBO

EM Corporate

EM LBO

4. Issuance – European Developed Market High Yield Bonds

4.1. European Developed Market HY Bond Issuance by Currency

4.2. European Developed Market HY Fixed vs. Floating Rate Bond Issuance

0.0

5.0

10.0

15.0

20.0

25.0

30.0

Q1 Q2 Q3 Q4

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2009

€ Billions

Source: Dealogic

European HY Bond Issuance by Currency2000 - 2009:Q4

Other

USD

GBP

EUR

0.0

5.0

10.0

15.0

20.0

25.0

30.0

Q1 Q2 Q3 Q4

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2009

€ Billions

Source: Dealogic

European HY Bond Issuance, Fixed vs Floating2000 - 2009:Q4

Floating

Fixed

4.3. European Developed Market HY Issuance, Sponsored vs. Corporate

0.0

2.0

4.0

6.0

8.0

10.0

12.0

Q1 Q2 Q3 Q4

2009

€ Billions

Source: Dealogic

European Developed Market HY Issuance, Sponsored vs Corporate2009:Q1 - 2009:Q4

Europe LBO

Europe Corporate


Q4 2009

4.4. European Developed Market HY Bond Issuance

Issuer Industry Group Date Currency Amount (Millions) Coupon Moodys S&P Fitch

Fresenius US Finance II Inc Healthcare 15/01/2009 EUR 275 8.75 Ba1 BB BBUSD 500 9.00 Ba1 BB

NXP Semiconductors Netherlands BV Computers & Electronics 03/03/2009 EUR 29 10.00 CCUSD 90 10.00 CC

ITV plc Telecommunications 13/05/2009 GBP 100 5.38 BB‐Stora Enso Oyj Forestry & Paper 14/05/2009 EUR 232 5.13 Ba2 BB BB+Pernod Ricard SA Food & Beverage 28/05/2009 EUR 800 7.00 Ba1 BB+ BB+Virgin Media Finance plc Telecommunications 29/05/2009 EUR 180 9.50 B2 B‐ BB‐

USD 750 9.50 B2 B‐ BB‐Compagnie Generale de Geophysique‐Veritas Oil & Gas 02/06/2009 USD 350 9.50 Ba3 BB NRFresenius Finance BV Healthcare 03/06/2009 EUR 150 5.50 Ba2 BB BBIFCO Systems NV Construction/Building 05/06/2009 EUR 200 10.00 Ba3 BB‐ITV plc Telecommunications 10/06/2009 EUR 188 10.00 Ba3 BB‐Ardagh Glass Finance plc Consumer Products 19/06/2009 EUR 300 9.25 Ba3 BB BB‐Wind Acquisition Finance SA Telecommunications 01/07/2009 EUR 1,250 11.75 B2 BB‐ B+

USD 2,000 11.75 B2 B‐ B+ISS Finans A/S Professional Services 15/07/2009 EUR 525 11.00 BVirgin Media Finance plc Telecommunications 17/07/2009 USD 600 9.50 B2 B‐NXP Semiconductors Netherlands BV Computers & Electronics 23/07/2009 USD 131 10.00 B‐Fiat Finance & Trade Ltd SA Auto/Truck 23/07/2009 EUR 1,250 9.00 Ba1 BB+ BB+HTM Sports & Freizeitgeraete AG Consumer Products 14/08/2009 EUR 44 10.00Fiat Finance & Trade Ltd SA Auto/Truck 08/09/2009 EUR 1,250 7.63 Ba1 BB+ BB+Petroplus Finance 3 Ltd Oil & Gas 09/09/2009 USD 400 9.38 B1 BB‐Wendel SA Finance 28/09/2009 EUR 300 4.88 NR BB‐ NRRenault SA Auto/Truck 29/09/2009 EUR 750 6.00 Ba1 BB BBHella KGaA Hueck & Co Auto/Truck 13/10/2009 EUR 300 7.25 Ba1HeidelbergCement AG Construction/Building 14/10/2009 EUR 2,500 7.50 B3 B+ BB‐Campofrio Food Group SA Food & Beverage 23/10/2009 EUR 500 8.25 B1 B+Virgin Media Finance plc Telecommunications 04/11/2009 GBP 350 8.88 B2 B BB

USD 600 8.88 B2 B‐ BBWilliam Hill plc Leisure & Recreation 06/11/2009 GBP 300 7.13 Ba1 BB+Fiat Finance & Trade Ltd SA Auto/Truck 10/11/2009 EUR 1,500 6.88 Ba1 BB+ BB+Inmarsat Finance plc Telecommunications 12/11/2009 USD 650 7.38 Ba2 BB+Unitymedia GmbH Telecommunications 17/11/2009 EUR 2,095 8.125/9.625 B3/B1 B‐/BB‐

USD 845 8.13 B1 BB‐Piaggio & C SpA Auto/Truck 01/12/2009 EUR 150 7.00 Ba2 BBWind Acquisition Holdings Finance SpA Telecommunications 10/12/2009 EUR 325 12.25 B3 B‐ B

USD 625 12.25 B3 BB BInfinis Ltd Utility & Energy 11/12/2009 GBP 275 9.13 B1 B+Rexel SA Computers & Electronics 11/12/2009 EUR 575 8.25 B1 B+ BB‐Expro Finance Luxembourg SCA Oil & Gas 14/12/2009 USD 1,400 9.13 B1 B+ B+Fiat Finance & Trade Ltd SA Auto/Truck 15/12/2009 EUR 200 8.50 Ba1 BB+ BB+Novasep Holdings SAS Healthcare 16/12/2009 EUR 270 5.75 B3 B

USD 150 9.75 B3 B NRDaily Mail & General Trust plc ‐ DMGT Publishing 22/12/2009 GBP 175 5.75 BBB BBB‐

Source: Bloomberg, Dealogic


Q4 2009

5. Issuance – European Emerging Market High Yield Bonds 5.1. European Emerging Market HY Bond Issuance 5.2. European Emerging Market HY Bond Issuance by

Industry

0

10

20

30

40

50

60

70

80

90

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

Q1 Q2 Q3 Q4

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2009

# of Deals€ Billions

Source: Dealogic

European Emerging Market HY Bond Issuance2000 - 2009:Q4

HY Deal Issuance# of Deals (Right)

0.0 0.5 1.0 1.5 2.0

Auto/Truck

Computers & Electronics

Finance

Food & Beverage

Oil & Gas

Telecommunications

€ Billions

Source: Dealogic

European Emerging Market HY Issuance by Industry2009

5.3. European Emerging Market HY Bond Issuance by Country of Risk

5.4. European Emerging Market HY Bond Issuance, Fixed vs. Floating

0.0 0.5 1.0 1.5 2.0 2.5

Croatia

Czech Republic

Hungary

Poland

Russian Federation

Ukraine

€ Billions

Source: Dealogic

European Emerging Market HY Issuance by Country of Risk2009

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

Q1 Q2 Q3 Q4

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2009

€ Billions

Source: Dealogic

European EM Bond Issuance, Fixed vs Floating2000 - 2009:Q4

Floating

Fixed

5.5. European Emerging Market HY Issuance, Sponsored vs Corporate

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

Q1 Q2 Q3 Q4

2009

€ Billions

Source: Dealogic

European Emerging Market HY Issuance, Sponsored vs Corporate2009:Q1 - 2009:Q4

EM LBO

EM Corporate


Q4 2009

5.6. Emerging Market HY Bond Issuance

Issuer Industry Group Date Currency Amount (Millions) Coupon Moodys S&P Fitch

Alfa Bank Ukraine ZAT Finance 30/07/2009 USD 185 13.000Alfa Bank Ukraine ZAT Finance 30/07/2009 USD 268 13.000Alfa Bank Ukraine ZAT Finance 30/07/2009 USD 387 13.000Central European Media Enterprises Ltd ‐ CEME Telecommunications 11/09/2009 EUR 200 11.625 B2 BCentral European Media Enterprises Ltd ‐ CEME Telecommunications 23/09/2009 EUR 240 11.625 B2 BRenaissance Securities Trading Ltd Finance 25/09/2009 USD 225 12.000 B1 B+ BCredit Europe Bank (Russia) Ltd Finance 22/10/2009 USD 150 9.000 Ba3 NRNaftogaz Ukraine NAK Oil & Gas 05/11/2009 USD 1,595 9.500 Caa2 BRolf Group ZAO Auto/Truck USD 150 13.000 Caa2 CCC CCCTVN Finance Corporation II AB Telecommunications 12/11/2009 EUR 405 10.750 B1 B+Promsvyazbank OAO Finance 20/11/2009 USD 200 12.750 Ba3 CCC+ B‐VTB Leasing Ukraine Finance 23/11/2009 USD 789 3M LIBOR+1050CEDC Finance Corporation International Inc Food & Beverage 24/11/2009 EUR 380 8.875 B1 B+

USD 380 9.125 B1 B+Ak Bars Bank OAO Finance 27/11/2009 USD 206 10.250 Ba3 NR BBSitronics OAO Computer & Electronics USD 230 3M LIBOR+800Agrokor dd Food & Beverage 04/12/2009 EUR 400 10.000 B2 BMagyar Telecom BV ‐ Matel Telecommunications 08/12/2009 EUR 345 9.500 B1 BNew Moscow Bank ZAO ‐ Nomos Bank Telecommunications 09/12/2009 USD 200 9.250 Ba3 NR B+

Source: Bloomberg, Dealogic


Q4 2009

6. Credit Quality 6.1. European HY Default Rate 6.2. European Issuer Rating Actions1

0.0

2.0

4.0

6.0

8.0

10.0

12.0

Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09

Percent

Source: Standard & Poor's

European HY Default Rate (LTM)Jan. 2003 - Dec. 2009

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

0

10

20

30

40

50

60

70

80

90

100

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

2008 2009

# Of Issuers


S&P European Issuer Rating Actions2008 - 2009

Upgrades

Downgrades

Downgrade Ratio (Right)

6.3. European Industry Rating Actions by $ Amount 6.4. European Loan Default Rate

0 5000 10000 15000 20000 25000 30000 35000

Auto

Brokerage

Capital Goods

Chemicals, Packaging …

Consumer Products

Forest Products and …

High Technology

Insurance

Integrated Oil and Gas

Media and Entertainment

Telecommunications

Transportation

Utility

USD Billions


S&P European Issuer Rating Actions by $ Amount ex Sovereign & Banks2009:Q4

Emerging Market Europe Down

Emerging Market Europe Up

Developed Europe Down

Developed Europe Up

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

2004 2005 2006 2007 2008 2009

Percent

Source: Fitch Ratings

European Loan Default Rate (LTM)2004:Q1 - 2009:Q4

Senior Leveraged Loans (Adjusted for CC*/C*)

Senior Leveraged Loan Default Rate (Unadjusted)

Mezz Loan (Adjusted for CC*/C*)

Mezz Loan Default (Unadjusted)

1 “European” issuer downgrades are according to S&P’s “Europe” list and may not include certain European emerging market countries. Numbers include both corporate and sovereigns.


Q4 2009

7. Total Return 7.1. European HY Bond Total Return 7.2. European Leveraged Loan Total Return

-40.0

-20.0

0.0

20.0

40.0

60.0

80.0

Q1 Q2 Q3 Q4

2001 2002 2003 2004 2005 2006 2007 2008 2009 2009

Percentage

Source: Bank of America-Merrill Lynch

European High Yield Total Return 2001 - 2009:Q4

-40.0

-30.0

-20.0

-10.0

0.0

10.0

20.0

30.0

40.0

50.0

Q1 Q2 Q3 Q4

2003 2004 2005 2006 2007 2008 2009 2009

Percentage

Source: Standard and Poor's LCDELLI EUR-denominated only unavailable for 2003 and 2004.

European Leveraged Loan Total Return 2003 - 2009:Q4

ELLI

ELLI (EUR‐denominated only)

7.3. Asset Class Total Return

-20 0 20 40 60 80 100 120 140 160

U.S. TreasuriesU.S. Mortgages 30Y

EMU Covered BondsEMU ABS/MBS

EMU Financial CorporatesU.S. MunicipalU.S. ABS/MBS

U.S. CorporatesS&P 500

Russell 2000S&P ELLI

Euro HY BB ratedU.S. HY

MCSI EMGlobal Fallen Angel HY

Euro High YieldEuro Fallen Angel HY

Euro HY B RatedU.S. HY Distressed

Euro HY CCC and Lower Rated

Percentage

Source: BofA-ML, Bloomberg

Asset Class Total Returns2009


Q4 2009

Summary of the Methodologies Adopted for this Report

1. Leveraged Issuance – Overview 1.1. – 1.3. Leveraged Loans and High Yield Bonds Leveraged loan data are sourced from Thomson Reuters LPC and Dealogic.

Leveraged loan data from Thomson Reuters LPC are defined primarily as having sub-investment grade ratings and/or a margin spread minimum of 200 basis points (spread minimums will vary from year to year to make Thomson LPC’s cutoff). Leveraged loan aggregates will include first lien, second lien, and mezzanine financing. Discrepancies in Thomson Reuters LPC data are due to rounding and/or currency rate of exchange.

Leveraged loan data from Dealogic are defined primarily as coming from a leveraged or highly leveraged European deal; loan tranches must have sub-investment grade ratings, or, if unrated, a margin spread minimum of 125 basis points over a benchmark (e.g., Euribor, LIBOR). Under these guidelines, sub-investment grade-rated loans with a margin spread of less than 125 basis points are included. Deals must be European and are inclusive of both developed and emerging market Europe as defined in high yield criteria in Section 3. Loans not EUR-denominated are converted to €as of credit date for purposes of aggregation. Aggregates include new money as well as non-new money deals.

Criteria for high yield bond transactions can be found in Section 3, 4, and 5.

1.4. European Holdco PIK Issuance European LTM Holdco PIK data is sourced from Fitch Ratings. Data is displayed on a last 12 month (LTM) basis. Inclusion of certain deals in Fitch’s numbers are at the discretion and guidelines of Fitch Ratings and will not include certain hybrid and/or unusual PIK structures.

1.5. – 1.8. Bank Lending Surveys Data for loan demand and credit standards are sourced from the ECB’s bank lending survey. Graph numbers are net percentages of reporting banks.

2. Issuance – Leveraged Loans 2.1. – 2.2. Leveraged loan issuance is sourced primarily from Dealogic and Thomson Reuters LPC. For more details on qualifying criteria, please refer to section 1.

2.3. Forward Pipeline of Leveraged Loan Market Forward leveraged loan pipeline data is sourced from S&P LCD.

2.4. S&P ELLI Total Institutional Loans Outstanding Total institutional loan outstanding data are sourced from S&P LCD and are outstanding loans in the S&P ELLI index.

2.5. S&P ELLI Ratings Diversification S&P ELLI ratings diversification are the percentages of currently outstanding loans in S&P’s ELLI index that are rated accordingly. Data is provided by S&P LCD.

2.6. European Leveraged Loan Ratios European leveraged loan ratios are sourced from Fitch Ratings and are a debt/EBITDA ratio across Fitch’s shadow rated universe. Transactions included in the ratio include new as well as existing transactions and ratings may be assigned at various points in time in 2009.

2.7. – 2.8. Loan Spreads Loan spread data is sourced from Dealogic under our critieria for leveraged loans (see Section 1). Spreads are a weighted average of spread margin on new leveraged issuance on a rolling twelve months basis, and are typically benchmarked to EURIBOR. Institutional loan spread data is inclusive of 2nd lien; pro rata spreads include all revolvers and term loan A (Tla).

3. Issuance –High Yield Bonds Overview High yield bond transactions are sourced primarily from Dealogic, with supplemental information sourced from Bloomberg. High yield transactions are defined as transactions with a Dealogic “effective” rating of equal or less than BB+,” and may include unrated transactions based on issuer and desk notes. Split-junk rated transactions are generally excluded.

European issuance, inclusive of both emerging market Europe and developed market Europe, is defined as an issue having a Dealogic “deal nationality” as well as “nationality of risk” within Europe issued in the euro, foreign, and global markets; deals marketed locally are excluded. Sovereign, sub-sovereign, and supranational parent issuers are excluded from issuance, as well as ABS/MBS issuers.

Emerging market Europe and developed market European issuance is defined by nationality of risk, rather than nationality of deal, and although primarily sourced from Dealogic, is ultimately subject to EHYA’s discretion. Emerging and developed market issuance is mutually exclusive and will contain no overlap unless otherwise mentioned.

European emerging market bonds are further defined with having a minimum deal size of €75.0 million; deals on the same day from the same issuer are aggregated for the purpose of meeting this minimum. In the case of emerging market deals, Russian ruble (RUB)-denominated issuance is also excluded due to differences in terms and documentation.

3.2. European HY Issuance by Sponsor Data is sourced from Dealogic. LBO deals are defined as all high yield transactions whose issuer parent is a public or private finance entity (i.e., a financial sponsor), regardless of use of proceeds.


Q4 2009

4. Issuance – European Developed Market High Yield Bonds 4.1. – 4.4. High yield bond issuance data is sourced from Dealogic. For further criteria on how high yield issuance is defined, please refer to section 3.

Developed European issuance are deals predominantly from western Europe and includes deals from Andorra, Austria, Belgium, Bulgaria, Cyprus, Switzerland, Germany, Denmark, Spain, Estonia, Finland, France, Faroe Islands, United Kingdom, Guernsey, Gibraltar, Greenland, Greece, Isle of Man, Ireland, Iceland, Italy, Jersey, Liechtenstein, Luxembourg, Monaco, Malta, Montenegro, Netherlands, Norway, Portugal, San Marino, and Sweden.

5. Issuance – European Emerging Market High Yield Bonds 5.1. – 5.6. High yield bond issuance data is sourced from Dealogic. Crtieria for all high yield issuance is found in section 3.

Emerging market European issuance deals are predominantly from eastern Europe but will also additionally include Turkey, the Russian Federation, Kazakhstan, Turkmenistan, Uzbekistan, Tajikistan, Azerbaijian, and Kyrgyzstan.

6. Credit Quality 6.1. European HY Default Rate European HY bond default rates are sourced from S&P and is a trailing 12 month rate.

Europe for the S&P default rate is defined to include Austria, Belgium, Bulgaria, Channel Islands, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Norway, Poland, Portugal, Slovak Republic, Slovenia, Spain, Sweden, Switzerland and the United Kingdom. Countries are subject to revision.

6.2. European Issuer Rating Actions European issuer upgrades and downgrades are sourced from S&P. The list of countries included under S&P Europe’s upgrade and downgrade numbers are listed in section 6.1. Multiple downgrades of a single issuer are counted separately. Rating actions are inclusive of both corporate as well as sovereign downgrades.

6.3. European Issuer Rating Actions by $ Amount Rating actions by $ amount, industry, and country are sourced from S&P. Breakdown by emerging market and developed Europe are from AFME / EHYA’s definition of developed and emerging markets and would be, under S&P’s guidelines, a combination of both European and EMEA rating actions.

6.4. European Loan Default Rate European loan default rates, both mezzanine and senior leveraged loans, are sourced from Fitch Ratings and are on a LTM basis.

Adjusted rates for both mezzanine and senior loans are inclusive of Fitch’s CC*/C* shadow-rated leveraged credits, whereas unadjusted rates are exclusive of these rated credits. Senior leveraged loan data is available only for 2009.

7. Relative Value 7.1. European HY Bond Total Return European HY bond total return data is sourced from the Bank of America-Merrill Lynch’s Euro High Yield Index. The index tracks the performance of EUR-denominated below-investment-grade corporate debt publicly issued in the euro domestic or Eurobond markets. Qualifying securities must have a below-investment-grade rating and an investment-grade rated country of risk. Qualifying securities must have at least one year remaining term to maturity, fixed coupon schedule and minimum amount outstanding of €100 million. Original issue zero coupon bonds, “global securities” (debt issued simultaneously in the Eurobond and euro domestic markets), 144a securities and pay-in-kind securities, including toggle notes, qualify for inclusion in the index. Callable perpetual securities qualify provided they are at least one year from the first call date. Fixed-to-floating rate securities also qualify provided they are callable within the fixed rate period and are at least one year from the last call prior to the date the bond transitions from a fixed to a floating rate security. Defaulted, warrant-bearing and euro legacy currency securities are excluded from the index.

7.2. European Leveraged Loan Total Return Total return data is provided by S&P LCD and are total returns from S&P’s ELLI index, both ELLI and EUR-denominated ELLI. Total returns for ELLI EUR-denominated data are unavailable for 2003 and 2004.

7.3. Asset Class Total Return (Cash Basis) Total returns are sourced from Bloomberg and Bank of America-Merrill Lynch’s indices.

Disclaimer The information and opinion commentary in this High Yield and Leveraged Loan Report (Report) was prepared by the leveraged finance division of the Association for Financial Markets in Europe (AFME / EHYA) and the Securities Industry and Financial Markets Association (SIFMA). AFME / EHYA and SIFMA believe that the information in the Report, which has been obtained from multiple sources believed to be reliable, is reliable as of the date of publication. In no event, however, does either of AFME / EHYA and SIFMA make any representation as to the accuracy or completeness of such information. AFME / EHYA and SIFMA have no obligation to update, modify or amend the information in this Report or to otherwise notify readers if any information in the Report becomes outdated or inaccurate. AFME / EHYA and SIFMA will make every effort to include updated information as it becomes available and in subsequent reports. As information is collected from multiple sources and estimates by the individual sources may differ from one another, estimates for similar types of data could vary within the Report.

AFME / EHYA

Gilbey Strub, Managing Director www.afme.eu

SIFMA

Kyle Brandon, Managing Director, Director of Research

Sharon Sung, Research Analyst www.sifma.org

www.afme.eu

ehya european quarterly hy and leveraged loan report · 2019-12-19 · 2 afme / ehya european...

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