The high profile stressed situations — Altice, Ardagh, Atos, Intrum, Thames Water — haven’t had material effects on volumes, but dealt a blow to the performance of the lower quality part of the market, highlighting how quickly sentiment can turn when few important names give signs of financial stress.

According to a Barclays research, while the PE HY index is +1.1% year-to-date as of Wednesday, triple-Cs are now down 3.4%, having been up by 6.2% in March — the 9% drawdown in the space of six weeks is among the highest following the 2008 global financial crisis, alongside episodes in 2011 and 2020.

We’ve also witnessed somewhat muted market reaction to central banks and economic data, which has helped credit spreads remain within tight ranges. As Barclays added, the PE HY index (excluding financials) has held within a 300-350bps range so far this year, and started Wednesday at 331bps before tightening 6bps to 324bps. The iTraxx Crossover index showed some investor caution around this week's US Federal Reserve meeting, widening 6bps successively on Tuesday and Wednesday to 324bps. But this was still within the previous week's wides, and the index rallied 8bps in the subsequent Thursday trading session.

The Fed kept interest rates steady at current levels — 5.25%-5.5% — and confirmed borrowing costs will remain higher for longer. However, a mildly dovish conference set the stage for a short rally in the stock market, after Fed chair Jerome Powell signalled the next rates move was unlikely to be a hike and that the pace of the quantitative tightening will be “smooth”. An equity market reversal ensued around Powell's comments on tackling the US unemployment rate, but rallying then resumed into the end of the week, with the S&P 500 climbing 2% from Thursday to Friday.

In Europe, a wave of PMI data came from all part of the region, with some countries (like Italy) heavily missing expectations. But the CPI release confirmed that European inflation declined in line with expectations — 2.4% YoY in April — paving the way for a rate cut in June from the ECB.

High yield bonanza

The solid background in the EHY gave companies reason to rethink their debt strategies and find cheaper alternatives to the loan market.

This last two weeks borrowers have looked to refinance their loan debts with high yield issuance, as the average coupon for fixed rate notes so far in Q2 had hit 6.75%, according to 9fin data. By comparison, the leveraged loan market offers an all-in rate of roughly 785bps on average.

The Dutch hire equipment company Boels Rental, the Swedish security firm Verisure, and gaming companies Flutterand 888 all switched to bond investors to refi their loans, tackling mainly 2026 and 2027 maturities, according to 9fin.

Others used the bond market to finance acquisition deals that might otherwise have been a matter for the loan market.

The Italian education e-learning company Multiversity and the German hotel operator Motel One provided examples of how acquisition financing can be played out in the bond market.

Yet, following Altice’s lesson, both names received pushback from lenders who wanted more legal safeguards on debt and asset transferring. They and Italian private-label food producer La Doria were required to introduce J Crew blockers across their deals to limit the transfer of assets outside of the restricted group, as Bloomberg reported.

Some lenders speaking with 9fin raised concerns that Motel One’s deal, in which the founder Dieter Muller bought out Proprium Partners, would leave the company sponsorless with a lot of leverage — a PIK loan at the shareholder level also sparked doubts on the transaction.

But appetite won out, with Motel One, a debutant in the debt capital markets, pricing its €800m 2031 TLB at E+450bps/99 OID, and the notes offering — €500m SSNs — at 7.75% coupon.

Read 9fin's coverage of the deal here.

Check out the other high yield deals from European issuers that priced recently below:

Here are the high yield transactions still in the market:

Weekly high yield movers

Leveraged loans

The positive HY market has not delivered a setback for the leveraged loan market. On the contrary, companies priced €23bn of new supply in the European leveraged loan market in Q1 24, the most since Q2 2021, according to AlbaCore’s recent credit market update.

Buysiders and CLO managers speaking with 9fin expect hot HY issuance to be a short market window, which will slow down soon in favour of a pick up in M&A financing in the BSL market.

9fin sources said the M&A pipeline has grown steadily since the beginning of the year, with a current pipeline of €9bn versus €4bn reported in January, although it remains low compared to historical standards. Bank holidays across Europe also make May a quieter month for issuance, sellsiders flag.

“The pipeline is building,” one banker told 9fin. “Some sponsors are telling us they have two or three underwrites each they’re looking to sign. The market is good enough so that large cap stack can actually access the market and refi everything. Thinking of names like Stonegate, Lowell — there’s a few situations where if the market remains as it is and sponsors are willing to be constructive then there is a market to get those refis done.”

Sizable deals are expected to land in the next few weeks, such as the Zegona/Vodafone Spain LBO, for a total €8bn of M&A-driven new money supply, according to sources' numbers.

Luxembourg-based funds administrative provider Alter Domus left the pipeline and came to market on Friday morning with €1.45bn equivalent multi tranche facility, including €100m equivalent of delayed drawn term loan.

DDTLs are not a popular instruments amongst syndicated lenders — see Eleda and Normec — but are widely seen as a way for syndicated markets to compete with private credit. Read 9fin's report on DDTLs here.

In fact, Alter Domus dropped the possibility of a unitranche solution and turned to the syndicated market to back Cinven's buyout from Permira and refinance existing debt.

The euro tranche is guided E+400bps and 99-99.5, whereas the dollar has an offer of S+400bps and 99-99.50 with 0.5% floor — commitments are due 15 May at 5pm UKT/12pm ET.

With lenders waiting for other LBOs to be syndicated, A&Es and other forms of refinancing — as well as few repricings as in the case of ZPG (Zoopla) and Global.Blue — filled the gap in the loan primary market.

The Spanish theme park operator Parques Reunidos priced a €1.25bn 2029 TLB (an A&E of the original deal due September 2026) at E+450bps and 99 OID, with old lenders being receptive and rolling over their exposure. Read our coverage here.

UK supermarket giant Asda also came to market with a jumbo refinancing of around €3bn-equivalent (an upsized €1.285bn 2031 TLB, along with £1.75bn of 2030 SSNs) amid rumours about its future governance — the TLB priced at E+400bps and 99.5, with SSNs at 8.125%.

Asda said in a statement that it is the biggest sterling high-yield bond this year and the second-largest sterling bond in the European leveraged finance market — only behind Asda’s original £2.25bn sterling bond tranche in 2021.

Read 9fin's coverage here.

See the rest of the week’s priced loans below:

And here are the loans in the market:

Weekly leveraged loan movers

Forward pipeline