Fitch: Investor Appetite Remains High For U.S. Leveraged Finance Market
CHICAGO -- April 22, 2013
The U.S. leveraged finance market continued to take advantage of favorable
market conditions as the leveraged loan market set a new quarterly record in
issuance as noted in Fitch Ratings' new 'U.S. Leveraged Market Quarterly'
report. The high-yield bond and collateralized loan obligation (CLO) markets
remained healthy as both approached all-time highs.
U.S. leveraged issuers continue to maintain stable credit quality. Five
falling angels in the first quarter show continuing concerns surrounding
investment grade credits willingness to deteriorate credit quality. These were
half of the 10 downgrades this quarter as they outpaced upgrades for the third
consecutive quarter. The falling angels were highlighted by Dell Inc.'s and
H.J. Heinz Company's leveraged buyouts (LBO).
Eight issuers defaulted during the quarter totaling $3.4 billion, bringing the
12-month U.S. high yield default rate down to 1.6% at quarter end from 1.9% at
the end of 2012.
For first quarter 2013, high-yield bond issuance started strong with
approximately $29.5 billion, setting a new monthly high for January. Yields
continued their downward decent hitting an all-time low of 5.6% in late
January, however, widening slightly by the end of March. The Bank of America
Merrill Lynch U.S. High Yield Master II Index returned 2.9% for the first
quarter, remaining relatively steady from fourth quarter 2012. Investor demand
faded with retail funds taking in only $930 million compared to $20.6 billion
in first quarter 2012.
Leveraged loan issuance totaled $287 billion, setting a new quarterly record.
The $287 billion was supported by $140 billion issued in February, a new
monthly record. Refinancing and repricing dominated proceeds representing
nearly 75% of total issuance. Investor demand remained robust as retail loan
funds took in a record $13.9 billion, making it 41 consecutive weeks of
Fifty one CLOs totaling approximately $26.5 billion priced during the first
quarter, making it the most active quarter for issuance since the second
quarter 2012. The month of March was most active as 22 deals priced a total of
This quarter, Fitch's 'U.S. Leveraged Market Quarterly' report also highlights
the U.S. corporate credit cycle and recent developments in the U.S. Healthcare
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:
--'Leveraged Finance Annual Manual for the Americas', April 2013.
--'Fitch U.S. high Yield Default Insight - March 2013', April 2013;
--'U.S. Leveraged Finance Stats Quarterly - Fourth Quarter 2012', April 2013;
--'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.
Applicable Criteria and Related Research U.S. Leveraged Finance Market
Quarterly: First-Quarter Synopsis
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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Darin Schmalz, +1 312-606-2324
Fitch Ratings, Inc.
70 West Madison Street
Chicago, IL 60602
Michael Simonton, +1 312-368-3138
Chad Walker, +1 312-368-2056
Brian Bertsch, +1 212-908-0549
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