Fitch: U.S. Leveraged Finance Activity Slows in Second Quarter Amid Global Concerns

| July 24, 2012 | 0 Comments

CHICAGO–(BUSINESS WIRE)–

After posting a strong first quarter, the U.S. leveraged finance market
slowed considerable in the second quarter as European political risk and
signs of a fiscal showdown in the U.S. impacted issuance levels, as
noted in Fitch Ratings’ new ‘U.S. Leveraged Market Quarterly’ report.
The tone in the market was eerily reminiscent of the second half of
2011, which was characterized by lower issuance volumes, large investor
withdrawals out of retail funds and nominal returns. Somewhat insulated
from the broader market volatility was the collateralized loan
obligation (CLO) market, which experienced its most successful quarter
since 2008.

U.S. high yield bond issuance plummeted 50% drop from the record setting
first quarter. After averaging $29 billion per month in the first
quarter, June saw only $9 billion of high yield bonds price. High yield
retail flows were volatile throughout the second quarter, with a four
week stretch in May through early June that saw $6.5 billion being
pulled from high yield retail funds.

While not as nearly impacted as the U.S. high yield bond market, U.S.
leveraged loan issuance dropped 17% quarter-over-quarter. For the first
six months, loan issuance was down 22% from the same period last year.
Loan issuance began to trail-off in May, which prompted a number of
deals to be pulled in May and June. Primary issuance heading into the
summer months is likely to remain down, which could extend through the
remainder of the year. Events out of Europe and fact many issuers have
addressed their near-term refinancing needs will likely impact issuance
for the remainder of 2012.

Overall credit quality among most U.S. companies stabilized in the
second quarter. The number of upgrades once again outpaced downgrades in
the second straight quarter, led by Ford Motor Company’s upgrade in
April to investment grade.

Seven issuers defaulted during the quarter, pushing the 12-month U.S.
high yield default rate to 2.2% at quarter end from 1.9% at the end of
the first quarter and 1.5% at the end of 2011.

Twenty five CLOs totaling approximately $11 billion priced during the
second quarter, bringing first half issuance to approximately $16.5
billion. Consensus estimates now put full year CLO issuance in the $25
billion to $30 billion range, up from the $15 billion to $20 billion
range estimated at the start of the year.

This quarter, Fitch’s ‘U.S. Leveraged Market Quarterly’ report also
highlights recent developments out of Europe and the U.S. automotive
sector.

The full report ‘U.S. Leveraged Finance Quarterly’ is available at www.fitchratings.com/sectors/Corporate
Finance/Leveraged Finance.

For more information, visit: www.fitchratings.com/usleveragedfinance.

Additional information is available at ‘www.fitchratings.com‘.

Applicable Criteria and Related Research:

–‘Fitch U.S. High Yield Default Insight – June 2012′, July 18, 2012;

–‘U.S. Leveraged Finance Stats Quarterly – First Quarter 2012′, June
27, 2012;

–‘Fitch 50 – Structural Profiles of 50 Leveraged Credits’, June 20,
2012;

–‘Case Studies in Bankruptcy Enterprise Values and Creditor
Recoveries’, June 7, 2012;

–‘Bridging The Refinance Cliff, Volume V’, June 1, 2012;

–‘U.S. Pensions and OPEB – Recovery Implications’, May 31, 2012;

–‘Leveraged Finance Annual Manual’, May 1, 2012.

Applicable Criteria and Related Research: Leveraged Finance Market
Quarterly: Second-Quarter 2012

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=683423

Fitch U.S. High Yield Default Insight — June 2012

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=683408

U.S. Leveraged Finance Stats Quarterly — First Quarter 2012

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=682109

Fitch 50 — Structural Profiles of 50 Leveraged Credits

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=679173

Case Studies in Bankruptcy Enterprise Values and Creditor Recoveries

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=676042

Bridging The Refinance Cliff, Volume V

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=679571

U.S. Pensions and OPEB — Recovery Implications

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=678510

Leveraged Finance Annual Manual for the Americas

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=666629

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND
DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING
THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS.
IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE
AVAILABLE ON THE AGENCY’S PUBLIC WEBSITE ‘WWW.FITCHRATINGS.COM‘.
PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS
SITE AT ALL TIMES. FITCH’S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS
OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES
AND PROCEDURES ARE ALSO AVAILABLE FROM THE ‘CODE OF CONDUCT’ SECTION OF
THIS SITE.

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