FOMC minutes from the September meeting reinforced the Fed’s claim to be data dependent as they considered the balance of risks (e.g. doing too much by breaking the economy vs doing too little to beat inflation): “Participants generally judged that, with the stance of monetary policy in restrictive territory, risks to the achievement of the committee’s goals had become more two-sided.”

More dovish Fedspeak provided a tailwind to markets — Fed Vice Chair Philip Jefferson said he was cognizant of higher bond yields tightening financial conditions while San Francisco Fed President Daly said that the recent tightening in conditions “could be equivalent to another rate hike.”

Onto the main event, US CPI rose 0.4% in September month-over-month (versus 0.3% expected) but the core reading was in line with projections at 0.3% month-over-month. While annual CPI came in at 3.7% (above June and July), core annual CPI was at its slowest pace in two years at 4.1%. 

Nevertheless, the print (as is usually the case) had something for both sides — bears pointing to the fact that the annualised rate of CPI over the last 3 months is now at +4.9%, the highest it’s been since August 2022. 

So clearly, the fight against inflation isn’t over — even if it’s showing encouraging signs.

At the time of writing, markets seem to have mostly taken the print in its stride — equities are still up over the week and global yields have receded from last week’s highs. Futures are only pricing a 10% chance of a November hike (but worth noting the December probability edged up from 30% to 39%). 

A sellsider said that the high yield pipeline had been more affected by a volatile rates market in recent weeks but maintained that for issuers that need or want to come, the loan market is still there.

“Clearly we’ve had some macro issues which have quietened down primary a little bit but we’re still seeing healthy sentiment from a deal perspective.”

That said, the lack of new money deals in loan markets continues to be a familiar grumble. 

“M&A processes continue to drag on for a bit longer than expected,” the sellsider said. “We’re ultimately optimistic but we need to know how many deals and when. It’s probably a next year question.”

High yield

In the wake of last week’s rate rout, EHY issuers took more of a backseat and investors slammed down on the brakes — enough of a slowdown to stop Swedish shipping company Stena bringing its potential 5-8yr euro and/or dollar offering, which began marketing in late September and would have been used to redeem outstanding 2025s.

Research from the Barclays Credit Strategy says that “this week's EHY outflow was equivalent to more than 100bp of AUM, the largest since February 2022 and consistent across mutual funds and ETFs.”

Debt purchaser Encore Capital Group brought some limited supply, issuing a fungible add-on of  €100m of 2028 FRNs— pricing at OID of 99.01, with a E+425bps coupon in line with the existing bond. Proceeds will be used to repay revolver drawings.

Keeping with the floating rate theme (good news for EHY investors trying to minimise duration risk amid choppy rate markets), PHM Group announced that it will hold investor meetings commencing 16 October for €140m of 2026 FRNs — a tap issue adding to its €125m worth of FRNs due 2026. 

Even if this week was a relatively quiet week for EHY primary, the latest research from M&G’s Bond Vigilantessuggests that it can’t last for long given looming maturities:

“In Europe…€97bn of debt (23% of the index) [is] maturing in 2024/2025. Add in 2026 maturities, and the refinancing wall shoots up to just under 50% of the market. Historically speaking, this is likely to become the largest refinancing effort for HY issuers since the GFC (2008), and while some companies have already begun doing their homework, we expect it to become a key theme in 2024.”

The pipeline is biased towards higher quality issuers in the double-B cohort — more welcome news for investors trying to protect their portfolios against a murky macro backdrop.

A new earnings season gets underway today (we’ll continue to provide coverage throughout via our weekly Earnings Digest) — certain to be a catalyst for secondary markets over the coming weeks. 

In a similar vein, we saw construction product supplier SIG plc’s 2026 SSNs down just over 3 points this week to land at 81.2.

It followed the release of its Q3 Trading Update where it cited “like-for-like revenue for the period down 2% versus the prior year” as well as a “further softening in demand during September (notably in new build residential segments).”

Negative sentiment has also followed some recent new issues in secondary over the past few weeks — notably PureGym down to 97.4 from par (stable outlook recently reinforced by Moody’s) and Pepco down to 96.1 from par (although buoyed by the announcement of 17.7% revenue growth in fiscal year 2023).

Leveraged loans

While bonds have been quiet, it's been a hectic week in the lev loan world, as investors faced A&Es, dividend recaps and pulled deals all in the space of a week.

Dutch software company Exact Software addressed investors concerns on re-leveraging and priced the €400m minimum TLB due 2030 at the wider end of the guidance (E+450bps 99 OID vs 425/450bps 99.5 OID PT) adding €300m of rollover from previous TLBs. 

Speaking to 9fin before the final pricing, a buysider who passed on the deal cited “an aggressive cap structure” and “significant adjustments through history” which could cause trouble for the company if the macro picture deteriorates substantially.

Dutch compatriot Action Retail, one of the largest €TLB borrowers in Europe, proposed a $1bn loan to finance a payout to shareholders after closing an A&E financing in May. Despite proposing to pay out €1.4bn through a combination of dividends and buybacks, business performance has supported a ratings upgrade from both Moody’s and S&P, the former taking the corporate family rating from Ba3 to Ba2 and the latter from BB- to BB.

The seven year TLB is offered at S+350bps and 99 OID. Commitments are Thursday 19 October. 

In Sweden, travel agency Etraveli is seeking to refinance its debt and fund a shareholder dividend with a five year TLB, with guidance of E+475/500bps and 98 OID. Commitments are Thursday 19 October. 

Minimax Viking and Delachaux brought a return to all-too-familiar A&E activity with the former launching a dual currency TLB to push its loan maturities out from 2025 to July 2028. 

The €450m minimum leg is guiding towards E+325-350bps, while the $500m minimum tranche is guided at S+275-300bps, both at 99 OID. 

Rail engineering firm Delachaux instead decided to go with a single currency tranche, and is offering €700m at E+425bps and 98.50-99.0 OID to refinance its $200m April 2026 TLB and push the maturity of its €678m TLB to April 2029. 

To end the A&E chapter, UK-based real estate company ZPG (aka Zoopla) is working on a sterling and euro financing for £953m-equivalent. 

The 2028 minimum €300m tranche is talked at E+475-500bps and 98.5-99 OID, while the 2028 minimum £300m TLB is talked at S+575bp-600bps and 97-97.5 OID. First lien debt will be £882m-equivalent with the currency split yet to be determined. The transaction also includes a £70m second lien, marketed at S+850bps and 97-98 OID.

The refinancing transaction follows a £110m equity injection from sponsor Silver Lake, which will be used to cut the second lien down from £180m to £70m.

In case you can’t get enough of A&Es, check out our A&E Waiting List — 10 October update.

Restaurant Brands Iberia, however, decided there was just too much to digest in loans and withdrew its attempted repricing for its €310m TLB.

Similarly to FNAC Darty a few weeks ago, RBI justified the pulling citing “the current challenging market backdrop,” but according to a buysider, RBI’s retreat was not reflective of the overall market sentiment. 

As per 9fin's Q3 leveraged loan report, 80% of YTD euro leveraged loan issuance included refinancing (or recently repricing) as a purpose — so while overall issuance is up 152% YoY and 3% QoQ in Q3, it’s still a borrower’s market, with allocations dwindling and pricing tightening.

Refis will continue to dominate a remaining 2023 pipeline of around €4bn, sellsiders say, with strong LBO supply a 2024 prospect.

Switching attention to secondary, Apollo sent out a €274.8m BWIC this week, with assets matching those held by its ALME Loan Funding V CLO, according to a source close to the situation. 

The largest tranche listed on the BWIC came from Masmovil Ibercom’s Euskaltel September 2027 375bps TLB (€7m), while ice cream company Froneri followed with €5.5m (January 2027 262.5bps TLB), and Montagu-backed margarine maker St. Hubert was third with a €5.34m clip (January 2025 375bps TLB).

Forward pipeline