18
ehya Prepared in partnership with 2010 Q1 European High Yield & Leveraged Loan Report
ehya
Prepared in partnership with 2010 Q1
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 1.9. Global Comparison – High Yield Issuance .......................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....................5 2.4. S&P ELLI Total Institutional Loans Outstanding .............5 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 3.3. European Corporate Bonds ex Banks and Financials,
Outstanding ......................................................................6 3.4. European Corporate Bonds ex Banks and Financials,
Average Deal Size ............................................................6
4. Issuance – European Developed Market High Yield Bonds ..............................................................6
4.1. European Developed Market HY Bond Issuance ..............6 4.2. European Developed Market HY Issuance by Currency ...6 4.3. European Developed Market HY Issuance by Industry.....7 4.4. European Developed Market HY Issuance by Country of
Risk ..................................................................................7 4.5. European Developed Market HY Issuance, Fixed vs.
Floating ............................................................................7 4.6. European Developed Market HY Issuance, Sponsored vs.
Corporate..........................................................................7 4.7. European Developed Market HY Bond Issuance ..............8
5. Issuance – European Emerging Market High Yield Bonds........................................................................9
5.1. European Emerging Market HY Bond Issuance................9 5.2. European Emerging Market HY Bond Issuance by
Currency...........................................................................9 5.3. European Emerging Market HY Issuance by Industry ......9 5.4. European Emerging Market HY Issuance by Country of
Risk ..................................................................................9 5.5. European Emerging Market HY Issuance, Fixed vs.
Floating ............................................................................9 5.6. European Emerging Market HY Issuance, Sponsored vs.
Corporate..........................................................................9 5.7. Emerging Market HY Bond Issuance................................10
6. Credit Quality........................................................11 6.1. European HY Default Rate................................................11 6.2. European Issuer Rating Actions ........................................11 6.3. European Industry Rating Actions by $ Amount...............11
6.4. European Loan Default Rate .............................................11
7. Relative Value ...................................................... 12 7.1. European HY Bonds, Cash vs. Synthetic ..........................12 7.2. European Leveraged Loans, Cash vs. Synthetic................12
8. Total Return.......................................................... 12 8.1. European HY Bond Total Return......................................12 8.2. European Leveraged Loan Total Return ...........................12 8.3. Asset Class Total Return...................................................12
Annex........................................................................ 13 Disclaimer ................................................................ 15
1 AFME / EHYA EUROPEAN QUARTERLY HIGH YIELD AND LEVERAGED LOAN REPORT
Q1 2010
European Leveraged Finance: Continued Refinancing WaveHighlights and Market Environment Highlights • European leveraged finance issuance, which includes
leveraged loans and high yield bonds, totalled €26.5 billion in the first quarter of 2010, up from €24.6 billion in the prior quarter. As in the prior quarter, issuance, although up, was primarily focused on refinancing, amend to extend, and termouts to mitigate “maturity wall” problems in the near-term.
Market and Economic Environment • Financing conditions generally remained unchanged in
Europe, with banks reporting a net tightening of standards to both small and large issuers similar to the tightening seen in Q4’09. While there appears to be a slight net decrease in tightening standards to large issuers, liquidity constraints appear to be easing slightly comparatively, as competition from banks were cited as being the largest factor on a net basis affecting credit standards.
• However, it appears that loan demand has continued to drop in Europe, with banks reporting a net decrease in loan demand from both large and small issuers. M&A, fixed investment, and debt issuance continue to remain primary factors contributing to decreased demand, although it appears on a net basis that these factors are slightly less important than in Q4’09.
• Sovereign debt issues, particularly Greece, continue to contribute to the volatility of the credit markets in Europe, particularly toward the end of Q1’10. Shortly after the end of Q1’10, the International Monetary Fund, the European Commission, and the European Central Bank reached an agreement for a €110 billion financing plan for Greece, followed by a larger EU-wide €750 billion package to “address the severe tensions in certain market segments.”
Issuance Issuance: Leveraged Loans • Leveraged loan issuance, which includes first lien,
second lien, and mezzanine financing, totalled approximately €15.9 billion in 1Q’10, up 142.4 percent from €6.5 billion in 1Q’09. As in 2009, 2nd lien and mezzanine financing remained relatively flat.
• According to Dealogic, leading sectors in leveraged loan issuance in 1Q’10 were from telecommunications (€3.7 billion), publishing (€3.43 billion), and computers & electronics (€2.29 billion). Virgin Media’s £1.25 billion deal is the largest leveraged deal in 1Q’10 in Europe not primarily focused on refinancing (Seat PagineGialle €1.5 billion primarily to refinance existing facilities, while
Kabel Deutscheland GmbH’s €1.4 billion deal primarily an amend-to-extend transaction).
• Fewer refinancing deals were of the amend-to-extend variety, with 18.6% of all leveraged loan deals containing some form of maturity extension, but “maturity wall” pressures continue to ease with traditional refinancing deals; fully 67.1% of all leveraged loans were issued to refinance or repay existing debt.
• CLO issuance continues to remain muted. According to AFME/ESF, only one issue backed by leveraged loans of €580.7 million was issued in Europe in 1Q’10. With bank balance sheets constrained and a reduced investor base, the market for loans continues to remain weak. According to S&P LCD, the forward pipeline for loans in Europe at end-March was €0.
Issuance: European High Yield Bonds • Primary issuance in the first quarter, excluding emerging
market issuance, totaled €9.4 billion on 19 deals, led by telecommunications (€2.23 billion), construction (€2.15 billion), and food & beverage (€1.3 billion). From emerging market Europe, high yield issuance totaled €1.16 billion on 5 deals in 1Q’10. Collectively, high yield issuance in Europe, at €10.61 billion, is on track to match or exceed high yield issuance in 2006, when €41.89 billion of European high yield bonds were issued.
• As in the leveraged loan sector, high yield issuance use of proceeds were to primarily refinance or pay down existing debt; with 71.1% of all deals by euro amount issued for this purpose, up from 49% of all high yield issues in 2009.
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2009 2010
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Q1
Source: Dealogic, AFME/SIFMA
European High Yield Use of Proceeds2000 - 2010:Q1
RestructuringRepay Debt/RefinancingLBO/MBOGeneral Corporate PurposesAcquisitions
Returns & Credit Quality Returns • Both European leveraged loans and high yield continue
to both record positive returns in 1Q’10; according to S&P ELLI, European leveraged loans returned 4.41%, while high yield, according to Bank of America’s EUR HY index, returned 8.49%. Equities similarly recovered
2 AFME / EHYA EUROPEAN QUARTERLY HIGH YIELD AND LEVERAGED LOAN REPORT
Q1 2010
in 1Q’10 as well, suggesting a general market turnaround. The positive returns may be in part technical.
Credit Quality • The credit markets appear to be healing, with default
rates slowing down: according to S&P, the high yield 12-month trailing European default rate was 6.59% as of end-March, down from 7.5% end-December 2009, albeit slightly higher than the 5.1% default rate end-March of 2009. Only 1 default was reported in Q1 in Europe, an Irish media and entertainment company.
• However, sovereign debt concerns and fears of contagion appear to have reignited in Europe in end-March. While three sovereigns were downgraded in Europe (S&P - Iceland, Republic of Montenegro; Fitch - Iceland, Portugal), additional sovereign downgrades have appeared on the horizon in early Q2’10.
• European total upgrades/downgrades edged downward slightly in 1Q’10, with 46 rating actions reported in both developed and emerging market Europe, down from 57 in 4Q’09 (and 128 in Q1’09). The pace of downgrades appear to have abated in particular from emerging market Europe, with only two downgrades reported in Q1 (SAZKA a.s., Evraz Group), down from 20 in Q4’09. Downgrades were concentrated primarily in the Eurozone, led by banks (four), transportation (four), and utilities (four).
3 AFME / EHYA EUROPEAN QUARTERLY HIGH YIELD AND LEVERAGED LOAN REPORT
Q1 2010
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
2009 2010
2003 2004 2005 2006 2007 2008 2009 Q1
€ Billions
Sources: Dealogic, Thomson Reuters LPC
European Leveraged Issuance2003 - 2010:Q1
Europe EM HY
Europe Developed HY
Leveraged Loans
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2009 2010
2003 2004 2005 2006 2007 2008 2009 Q1
Percentage
Sources: Dealogic, Thomson Reuters LPC
European Leveraged Issuance2003 - 2010:Q1
Europe EM HY
Europe Developed HY
Leveraged Loans
1.3. European Leveraged Issuance Average Deal Size 1.4. European HoldCo PIK Issuance1
0.00
0.10
0.20
0.30
0.40
0.50
0.60
0.70
0.80
2009 2010
2003 2004 2005 2006 2007 2008 2009 Q1
€ Billions
Sources: Dealogic, Thomson Reuters LPC
European Leveraged Issuance Average Size2003 - 2010:Q1
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: Fitch Ratings
European Holdco PIK Issuance (LTM)2004 - 2009:Q4
1.5. Bank Credit Standards2 1.6. Factors Affecting Bank Credit Standards3
-30
-20
-10
0
10
20
30
40
50
60
70
80
Apr-05 Apr-06 Apr-07 Apr-08 Apr-09 Apr-10
Net Percentage
Source: ECB
Bank Credit StandardsApr. 2005 - Apr. 2010
SME
Large Enterprises
Overall
-10 -5 0 5 10 15 20 25
Liquidity Position
Market Financing
Competition from Non-Banks
Access to Market Financing
Risk on Collateral Demanded
Expectations Regarding Economic Activity
Industry or Firm-Specific Outlook
Net Percentage
Source: ECB
Factors Affecting Bank Credit StandardsApr. 2010
Large Enterprises
SME
Overall
1 Fitch Ratings data is to 2009 Q4 and will be subsequently updated to reflect Q1 numbers. 2 A positive net percentage number signifies tightening bank credit; a negative net percentage number signifies easing credit. 3 A positive net percentage signifies the factor contributed to tightening credit standards; a negative net percentage signifies the factor contributed to easing credit standards.
4 AFME / EHYA EUROPEAN QUARTERLY HIGH YIELD AND LEVERAGED LOAN REPORT
Q1 2010
1.7. Loan Demand4 1.8. Factors Affecting Loan Demand5
-50
-40
-30
-20
-10
0
10
20
30
Apr-05 Apr-06 Apr-07 Apr-08 Apr-09 Apr-10
Net Percentage
Source: ECB
Loan DemandApr. 2005 - Apr. 2010
SME
Large Enterprises
Overall
-40 -30 -20 -10 0 10 20 30
Fixed Investment
M&A, Restruturing
Debt Issuance
Equity Issuance
Loans from Other Banks
Loans from Non-Banks
Internal Financing
Inventorys, Working Capital
Debt Restructuring
Net Percentage
Source: ECB
Factors Affecting Loan DemandApr. 2010
1.9. Global Comparison – High Yield Issuance € Billions
Q1 Q2 Q3 Q4 Full Year Q1 Q2 Q3 Q4 Full Year 2008 2007United States 40.5 40.5 11.6 33.7 27.1 26.8 99.1 99.1 104.9Asia Pacific 7.3 7.3 6.8 8.1 7.0 9.4 31.3 31.3 22.8Europe 14.0 14.0 6.1 5.4 12.6 21.5 45.6 45.6 46.7
Prior20092010
2. Issuance – Leveraged Loans
2.1. European Leveraged Loan Issuance By Loan Type6 2.2. European Leveraged Loan Issuance by Industry Sector
0
50
100
150
200
250
300
2009 2010
2003 2004 2005 2006 2007 2008 2009 Q1
€ Billions
Source: Dealogic, Thomson Reuters LPC
Leveraged Loan Issuance by Loan Type2003 - 2010:Q1
Mezzanine
2nd Lien
1st Lien
0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0
Utility & Energy
Insurance
Finance
Professional Services
Food & Beverage
Construction/Building
Transportation
Retail
Healthcare
Chemicals
Computers & Electronics
Publishing
Telecommunications
EUR Billions
Source: Dealogic
Leveraged Loan Issuance by Industry2010:Q1
4 A positive net percentage signifies increased demand; a negative net percentage signifies decreased demand. 5 A positive net percentage signifies a factor that contributed to higher demand; a negative net percentage signifies a factor that contributed to lower demand. 6 Due to the discrepancies in data supply (and time of currency conversion) , this chart is not immediately comparable to other leveraged loan charts.
5 AFME / EHYA EUROPEAN QUARTERLY HIGH YIELD AND LEVERAGED LOAN REPORT
Q1 2010
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 Mar-10
€ Billions
Source: Standard & Poor's LCD
Forward Pipeline of Leveraged Loan Market2007:Q4 - 2010:Q1
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 2010 YTD
€ Billions
Source: Standard & Poor's LCD2010 YTD is as of April 1, 2010.
S&P ELLI Total Institutional Loans Outstanding2005 - 2010YTD
2.5. S&P ELLI Ratings Diversification 2.6. European Leveraged Loan Ratios7
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 2010 YTD
Percentage
Source: Standard & Poor's LCDYTD is as of April 1, 2010.
S&P ELLI Ratings Diversification2005 - 2010YTD
Other
NR
B
BB
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
Q1 Q2 Q3 Q4
2002 2003 2004 2005 2006 2007 2008 2009
xEBITDA
Source: Fitch Ratings
European Leveraged Loan Ratios2002 - 2009:Q4
Senior Loans (including 2nd Lien)
All Leveraged Loans
2.7. Institutional and Pro Rata Spreads 2.8. Mezzanine Spread
150
200
250
300
350
400
Mar-05 Sep-05 Mar-06 Sep-06 Mar-07 Sep-07 Mar-08 Sep-08 Mar-09 Sep-09 Mar-10
Basis Points
Source: Dealogic, AFME / EHYA, SIFMA
Institutional and Pro Rata SpreadsMar. 2005 - Mar. 2010
Institutional
Pro Rata
600
700
800
900
1000
1100
1200
1300
Mar-05 Sep-05 Mar-06 Sep-06 Mar-07 Sep-07 Mar-08 Sep-08 Mar-09 Sep-09 Mar-10
Basis Points
Source: Dealogic, AFME / EHYA, SIFMA
Mezzanine SpreadMar. 2005 - Mar. 2010
Mezzanine
7 Fitch data are as of 2009 Q4 and will be subsequently updated to reflect Q1 numbers.
6 AFME / EHYA EUROPEAN QUARTERLY HIGH YIELD AND LEVERAGED LOAN REPORT
Q1 2010
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
20
40
60
80
100
120
140
0
5
10
15
20
25
30
35
40
45
2009 2010
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Q1
# of Deals€ Billions
Sources: Dealogic, Thomson Reuters LPC
European HY Issuance, Developed and Emerging Markets2003 - 2010:Q1
EM HY
Europe Developed HY
# of Deals (Right)
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2009 2010
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Q1
Percentage
Sources: Dealogic
European HY Issuance, Sponsored vs Corporate2000 - 2010:Q1
Europe Corporate
Europe LBO
EM Corporate
EM LBO
3.3. European Corporate Bonds ex Banks and Financials, Outstanding
3.4. European Corporate Bonds ex Banks and Financials, Average Deal Size
0
500
1000
1500
2000
2500
3000
2010 Q1 (Billions)
€ Billions
Sources: Bloomberg, AFME, SIFMA
European Corporate Bonds ex Banks and Financials, Outstanding2010:Q1
HY Only (excluding Non‐Rated)
Non‐Rated
IG Only
0
100
200
300
400
500
600
IG Only Non-Rated HY Only (excluding Non-Rated)
€ Millions
Sources: Bloomberg, AFME, SIFMA
European Corporate Bonds ex Banks and Financials Outstanding, Average Size2010:Q1
4. Issuance – European Developed Market High Yield Bonds
4.1. European Developed Market HY Bond Issuance 4.2. European Developed Market HY Issuance by Currency
0
10
20
30
40
50
60
0.0
5.0
10.0
15.0
20.0
25.0
30.0
2009 2010
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Q1
# of Deals€ Billions
Source: Dealogic
European Developed Market HY Bond Issuance2000 - 2010:Q1
Europe Developed HY
# of Deals (Right)
0.0
5.0
10.0
15.0
20.0
25.0
30.0
2009 2010
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Q1
€ Billions
Source: Dealogic
European Developed Market HY Issuance by Currency2000 - 2010:Q1
Other
USD
GBP
EUR
7 AFME / EHYA EUROPEAN QUARTERLY HIGH YIELD AND LEVERAGED LOAN REPORT
Q1 2010
4.3. European Developed Market HY Issuance by Industry 4.4. European Developed Market HY Issuance by Country of Risk
0.0 0.5 1.0 1.5 2.0 2.5
Computers & Electronics
Professional Services
Consumer Products
Transportation
Retail
Auto/Truck
Finance
Publishing
Leisure & Recreation
Chemicals
Food & Beverage
Construction/Building
Telecommunications
€ Billions
Source: Dealogic
European Developed Market HY Issuance by Industry2010:Q1
0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5
Greece
Denmark
Ireland
Netherlands
Sweden
Austria
Spain
Italy
Norway
Germany
France
United Kingdom
€ Billions
Source: Dealogic
European Developed Market HY Issuance by Country of Risk2010:Q1
4.5. European Developed Market HY Issuance, Fixed vs. Floating
4.6. European Developed Market HY Issuance, Sponsored vs. Corporate
0.0
5.0
10.0
15.0
20.0
25.0
30.0
2009 2010
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Q1
€ Billions
Source: Dealogic
European Developed Market HY Bond Issuance, Fixed vs Floating2000 - 2010:Q1
FloatingFixed
0.0
5.0
10.0
15.0
20.0
25.0
2009 2010
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Q1
€ Billions
Source: Dealogic
European Developed Market HY Issuance, Sponsored vs Corporate2000 - 2010:Q1
Europe LBO
Europe Corporate
8 AFME / EHYA EUROPEAN QUARTERLY HIGH YIELD AND LEVERAGED LOAN REPORT
Q1 2010
4.7. European Developed Market HY Bond Issuance
Issuer Industry Group Date CurrencyAmount (Millions) Coupon Moodys S&P Fitch
Rexel SA Computers & Electronics 08/01/2010 EUR 75 8.250 B1 B+ BB‐HeidelbergCement AG Construction/Building 12/01/2010 EUR 1,400 6.500/7.500 B1 BB‐ BBFMC Finance VI SA Finance 13/01/2010 EUR 250 5.500 Ba2 BB+Virgin Media Secured Finance plc Telecommunications 13/01/2010 USD 1,000 6.500 Ba1 BB+ BB+
GBP 875 7.000 Ba1 BB+ BB+Ardagh Glass Finance plc Consumer Products 14/01/2010 EUR 180 8.750 B3 BMU Finance plc Leisure & Recreation 22/01/2010 USD 425 8.375
GBP 250 8.750SEAT PagineGialle SpA Publishing 22/01/2010 EUR 550 10.500 B1 B+Kerling plc Chemicals 22/01/2010 EUR 785 10.625 B3 BFage Dairy Industries SA Food & Beverage 26/01/2010 USD 150 9.875 B3 B‐InterXion Holding NV Telecommunications 09/02/2010 EUR 200 9.500 B2 BB‐Sable International Finance Ltd Telecommunications 09/02/2010 USD 500 7.750 Ba2 BBLadbrokes Group Finance plc Finance 26/02/2010 GBP 225 7.625 Ba2 BB BB+Pernod Ricard SA Food & Beverage 11/03/2010 EUR 1,200 4.875 Ba1 BB+ BB+Renault SA Auto/Truck 11/03/2010 EUR 500 5.625 Ba1 BB BBStena AB Transportation 11/03/2010 EUR 200 7.875 Ba2 BB+Abengoa SA Construction/Building 23/03/2010 EUR 500 8.500 Ba3 BMatalan Finance Ltd Retail 24/03/2010 GBP 225 9.625 Ba3 BWienerberger AG Construction/Building 25/03/2010 EUR 250 4.875 Ba1 BBISS Holding A/S Professional Services 25/03/2010 EUR 128 8.875 Caa1 B
Source: Bloomberg, Dealogic
9 AFME / EHYA EUROPEAN QUARTERLY HIGH YIELD AND LEVERAGED LOAN REPORT
Q1 2010
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
Currency
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
2009 2010
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Q1
# of Deals€ Billions
Source: Dealogic
European Emerging Market HY Bond Issuance2000 - 2010:Q1
EM HY# of Deals (Right)
0.0
5.0
10.0
15.0
20.0
25.0
2009 2010
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Q1
€ Billions
Source: Dealogic
European Emerging Market HY Issuance by Currency2000 - 2010:Q1
Other
USD
GBP
EUR
5.3. European Emerging Market HY Issuance by Industry 5.4. European Emerging Market HY Issuance by Country of
Risk
0.0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1.0
Oil & Gas
Finance
€ Billions
Source: Dealogic
European Emerging Market HY Issuance by Industry2010:Q1
0.0 0.2 0.4 0.6 0.8 1.0 1.2 1.4
Russian Federation
€ Billions
Source: Dealogic
European Emerging Market HY Issuance by Country of Risk2010:Q1
5.5. European Emerging Market HY Issuance, Fixed vs. Floating
5.6. European Emerging Market HY Issuance, Sponsored vs. Corporate
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
2009 2010
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Q1
€ Billions
Source: Dealogic
European Emerging Market HY Bond Issuance, Fixed vs Floating2000 - 2010:Q1
FloatingFixed
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
2009 2010
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Q1
€ Billions
Source: Dealogic
European Emerging Market HY Issuance, Sponsored vs Corporate2000 - 2010:Q1
EM LBO
EM Corporate
10 AFME / EHYA EUROPEAN QUARTERLY HIGH YIELD AND LEVERAGED LOAN REPORT
Q1 2010
5.7. Emerging Market HY Bond Issuance
Issuer Industry Group Date CurrencyAmount (Millions) Coupon Moodys S&P Fitch
Tatfondbank OAO Finance 27/01/2010 USD 109 12.000 B2USD 116 12.000 B2
International Industrial Bank ‐ Mezhprombank Finance 04/02/2010 USD 200 11.000 B1 B BAlliance Oil Co Ltd Oil & Gas 04/03/2010 USD 350 9.875 B+ BAlfa MTN Issuance Ltd Finance 09/03/2010 USD 600 8.000 Ba1 B+ BBRenaissance Capital Bank OOO Finance 25/03/2010 USD 225 13.000 B3 B‐ B‐
Source: Bloomberg, Dealogic
11 AFME / EHYA EUROPEAN QUARTERLY HIGH YIELD AND LEVERAGED LOAN REPORT
Q1 2010
6. Credit Quality 6.1. European HY Default Rate 6.2. European Issuer Rating Actions1
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
10.0
Mar-03 Mar-04 Mar-05 Mar-06 Mar-07 Mar-08 Mar-09 Mar-10
Percent
Source: Standard & Poor's
European HY Default Rate (LTM)Mar. 2003 - Mar. 2010
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 Q1
2008 2009 2010
# Of Issuers
Source: Standard & Poor's
S&P European Issuer Rating Actions2008 - 2010:Q1
Upgrades
Downgrades
Downgrade Ratio (Right)
6.3. European Industry Rating Actions by $ Amount 6.4. European Loan Default Rate2
0 5000 10000 15000 20000 25000 30000
Capital Goods
Chemicals, Packaging …
Forest Products and …
Healthcare
High Technology
Home/real estate …
Insurance
Integrated Oil and Gas
Media and Entertainment
Metals, Mining and Steel
Oil and Gas Exporation …
Telecommunications
Transportation
Utility
USD Billions
Source: Standard & Poor's
S&P European Issuer Rating Actions by $ Amount ex Sovereign & Banks2010:Q1
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. 2 Fitch data are as of 2009 Q4 and will be subsequently updated to reflect Q1 numbers.
12 AFME / EHYA EUROPEAN QUARTERLY HIGH YIELD AND LEVERAGED LOAN REPORT
Q1 2010
7. Relative Value 7.1. European HY Bonds, Cash vs. Synthetic 7.2. European Leveraged Loans, Cash vs. Synthetic
0
200
400
600
800
1000
1200
1400
Jan-08 Jul-08 Jan-09 Jul-09 Jan-10
Basis Points
Sources: Markit
Bonds, Cash vs. SyntheticJan. 2008 - Mar. 2010
iBoxx EURiTraxx XO 5Y
50.0
60.0
70.0
80.0
90.0
100.0
110.0
Jan-08 Jul-08 Jan-09 Jul-09 Jan-10
Price/Bid
Sources: Thomson Reuters LPC, Markit
Loans, Cash vs. SyntheticJan. 2008 - Mar. 2010
LevX Senior
Euro Lev Top 40
8. Total Return
8.1. European HY Bond Total Return 8.2. European Leveraged Loan Total Return
-40.0
-20.0
0.0
20.0
40.0
60.0
80.0
2009 2010
2001 2002 2003 2004 2005 2006 2007 2008 2009 Q1
Percentage
Source: Bank of America-Merrill Lynch
European High Yield Total Return 2001 - 2010:Q1
-40.0
-30.0
-20.0
-10.0
0.0
10.0
20.0
30.0
40.0
50.0
2009 2010
2003 2004 2005 2006 2007 2008 2009 Q1
Percentage
Source: Standard and Poor's LCDELLI EUR-denominated only unavailable for 2003 and 2004.
European Leveraged Loan Total Return 2003 - 2010:Q1
ELLI
ELLI (EUR‐denominated only)
8.3. Asset Class Total Return
-20 -15 -10 -5 0 5 10 15 20
Euro HY CCC and Lower RatedU.S. HY Distressed
Euro Fallen Angel HYGlobal Fallen Angel HY
Russell 2000Euro High Yield
Euro HY BB ratedEuro HY B Rated
S&P 500U.S. HY
U.S. ABS/MBSS&P ELLI
EMU Financial CorporatesEMU ABS/MBSU.S. Corporates
EMU Covered BondsU.S. Mortgages 30Y
U.S. MunicipalU.S. Treasuries
MCSI EM
Per
cent
age
Source: BofA-ML, Bloomberg
Asset Class Total Returns2009:Q1 v 2010:Q1
Q1 2010
Q1 2009
13 AFME / EHYA EUROPEAN QUARTERLY HIGH YIELD AND LEVERAGED LOAN REPORT
Q1 2010
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. Deals must also be marketed either in Europe or in the United States. Loans not EUR-denominated are converted to EUR 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 are sourced from Fitch Ratings. Data are 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.
1.9. Global Comparison – High Yield Issuance Data for global high yield issuance are sourced from Dealogic. Asian deals are inclusive of Japan and Australia.
2. Issuance – Leveraged Loans 2.1. – 2.2. Leveraged loan issuance data are 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 are 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 are 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 throughout the year.
2.7. – 2.8. Loan Spreads Loan spread data are sourced from Dealogic under our criteria for leveraged loans (see Section 1). For purposes of loan spread calculations, deals marketed in the US are excluded. Spreads are a weighted average of spread margin on new leveraged issuance on a rolling twelve months basis, and are typically benchmarked to LIBOR or EURIBOR. Institutional loan spread data are 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, are 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 are 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 are 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. Russian ruble (RUB)-denominated issuance are excluded due to differences in terms and documentation.
14 AFME / EHYA EUROPEAN QUARTERLY HIGH YIELD AND LEVERAGED LOAN REPORT
Q1 2010
3.2. European HY Issuance by Sponsor Data for high yield issuance by sponsor are 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.
3.3 – 3.4. European Corporate Bonds Outstanding Data for European corporate outstanding are sourced from Bloomberg and AFME/SIFMA estimates. Criteria for European corporate bonds are: bonds must be placed in the euro, foreign, and global markets (domestically placed issues are excluded) with a nationality of issue and risk from a European developed or emerging market country as defined by AFME/EHYA. Corporate bonds exclude all issuance from banks and financials, and excludes all covered bonds, warrants, deposit notes, receipts, and certificates of deposit. No currencies are excluded in this analysis and all non-EUR currencies are converted to EUR at end-quarter exchange rates.
To qualify as an investment grade corporate bond, a security must have a minimum of one investment grade rating from Moody’s, Standard and Poor’s, or Fitch Ratings. Split-rated securities are also included in investment-grade numbers. To quality as a high yield corporate bond, a security must have a minimum of one sub-investment-grade rating from Moody’s, Standard and Poor’s, or Fitch Ratings; withdrawn ratings are not counted for purposes of determining high yield. Unless otherwise specified, high yield outstanding totals in discussion commentary will include non-rated securities, regardless of the credit quality of the debt or issuer.
4. Issuance – European Developed Market High Yield Bonds 4.1. – 4.7. High yield bond issuance data are sourced from Dealogic. For further criteria on how high yield issuance are 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. – 5.7. High yield bond issuance data are sourced from Dealogic. Criteria for all high yield issuance are 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, Azerbaijan, and Kyrgyzstan.
6. Credit Quality 6.1. European HY Default Rate European HY bond default rates are sourced from S&P and are on a trailing 12 month basis.
“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 US dollar 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. Cash and Synthetic 7.1. – 7.2. Loans and Bonds, Cash and Synthetic Data are sourced from Markit and Thomson Reuters LPC. High yield bond cash and synthetic spreads from Markit; European leveraged loan cash bid prices from Thomson Reuters LPC, and European leveraged loans synthetic prices from Markit.
8. Total Return 8.1. European HY Bond Total Return European HY bond total return data are sourced from the Bank of America-Merrill Lynch’s Euro High Yield Index (HE00). 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),
15 AFME / EHYA EUROPEAN QUARTERLY HIGH YIELD AND LEVERAGED LOAN REPORT
Q1 2010
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.
8.2. European Leveraged Loan Total Return Total return data are 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.
8.3. Asset Class Total Return (Cash Basis) Total returns are sourced from respective index owners 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
