LONDON — Europe, Middle East and Africa (EMEA) leveraged finance markets began 2017 very strongly by posting the highest issuance volumes since the 2008 financial crisis with leveraged loan markets leading the way, said Moody’s Investors Service in an update to the markets published over the weekend.
Leveraged loan volumes hit their highest monthly level since the financial crisis with $20.5 billion, more than three times the $5.9 billion recorded in January 2016. High-yield bond volumes also reached solid levels at $8.2 billion. Jointly, high-yield bond and rated leveraged loan issuance reached $28.7 billion, more than four times the $6.9 billion recorded in January 2016 and 29% ahead of the strongest post-crisis January in 2015 of $22.2 billion.
“The exceptional start to the year in leveraged finance markets reflects both the significant number of large transactions, for example in the cable sector, and the high deal count for both bonds and loans from a broad range of industries and countries,” said Peter Firth, a Moody’s Associate Managing Director at Moody’s.
January also stands out in credit quality terms, with the ratio of downgrades to upgrades rising significantly on the back of company specific factors. However, Moody’s continues to expect overall credit quality for 2017 to remain stable, with greater volatility on a monthly basis.
Meanwhile, Societe Generale Corporate and Investment Banking said in its report on “Debt Capital Markets 2016 Review and 2017 Forecast” that in 2016 CEEMEA corporate issuance split by region has been distorted versus previous years due to the jumbo $15 billion transaction executed by pharmaceutical company TEVA to finance part of the acquisition of Allergan’s drug unit. This particular transaction represented almost 50% of the corporate volumes this year.
The CIS region is the second most active this year, representing 22% of the volumes. Compared to 2015 where we only saw six syndicated deals from CIS corporates, 2016 was marked by the return of Russian corporates to the international bond market, with few issuers returning to the Eurobond market for the first time since 2013 (e.g. Polyus Gold, Lukoil, NLMK, Domodedovo, etc.)
CEE and Middle East corporate volumes remain the laggards (16% and 7% of total corporate volumes for 2016, respectively). The lack of corporate bond offerings from these regions is explained by access to attractive local currency funding and syndicated loans, as well as limited funding needs across the board. The overall EM and global macro lackluster environment, combined with regional political uncertainties have also put M&A and Capex to a minimal.
As usual, USD remained the currency of choice for corporate issuers. EUR-denominated volumes were more limited than in 2015 (only 19%). — SG