Fitch: U.S. Leveraged Finance Market Finishes 2012 in Record Style
CHICAGO -- January 28, 2013
After a record-setting third quarter, the U.S. high yield bond market
continued its record pace into the fourth quarter as noted in Fitch Ratings'
new 'U.S. Leveraged Market Quarterly' report. Fourth quarter leveraged loan
and collateralized loan obligation (CLO) issuance more than doubled
Credit quality among most U.S. companies remains stable; however, concerns
grow as downgrades outpaced upgrades for the second consecutive quarter. The
downgrades were heavily weighted in the retail and energy and related sectors
as Best Buy Co., Inc., J.C. Penney Corporation, Inc., and Energy Future
Holdings Corp. were all downgraded.
Seven issuers defaulted during the quarter totaling $7.2 billion, bringing the
12-month U.S. high yield default rate up to 1.9% at quarter end from 1.5% at
the end of 2011.
U.S. high yield bond issuance was less than a percentage point away from
another quarterly issuance record, ending at $91.9 billion. The high yield
market ended 2012 with $315 billion, beating the previous annual issuance
record set in 2010 by approximately 25%. The Bank of America Merrill Lynch
U.S. High Yield Master II Index returned 3.2% for the fourth quarter, bringing
the full-year 2012 return to 15.6%, the third year of double-digit returns out
of the last four.
For 2012, leveraged loan issuance was up 17% versus last year. Covenant-lite
and dividend recap issuance increased noticeably in the fourth quarter,
reaching levels last seen in 2007. Secondary loan bids crept higher late in
the year, hitting a 2012 high in December. Retail fund flow took in 29
straight weeks of inflows at end 2012. For the year, retail loan funds took in
over $11.6 billion.
Forty-two CLOs totaling approximately $21.8 billion priced during the fourth
quarter, bringing 2012 issuance to approximately $51.9 billion. Fourth quarter
issuance was the most active for issuance in 2012.
This quarter, Fitch's 'U.S. Leveraged Market Quarterly' report also highlights
the 2013 U.S. corporate outlook and recent developments in the U.S. food,
beverage, restaurant and consumer products 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:
--'U.S. Leveraged Finance Stats Quarterly - Third Quarter 2012', December
--'Covenant-Lite Loans: Asset-Based Lending and Its Impact on Covenant-Lite
Loans', November 2012;
--'Fitch 50 - Structural Profiles of 50 Leveraged Credits', June 2012;
--Leveraged Finance Annual Manual for the Americas', May 2012.
Applicable Criteria and Related Research: U.S. Leveraged Finance Market
Quarterly: Fourth-Quarter Synopsis/2013 Preview
Fitch 50 -- Structural Profiles of 50 Leveraged Credits - Amended
Leveraged Finance Annual Manual for the Americas
U.S. Leveraged Finance Stats Quarterly - Third Quarter 2012
Covenant-Lite Loans: Asset- Based Lending and Its Impact on Covenant-Lite
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