Credit markets update – Q2 2020

Credit market disruption in light of COVID-19; Managing liquidity for your business

Mike Rudolph

Mike Rudolph

Managing Director, KPMG Corporate Finance LLC

+1 708-391-7342

The global contraction in the second quarter may have been less severe than feared, as activity in May-June started to recover driven by the U.S. economy beginning to reopen and a resurgence in high-yield activity

  • New issue loan volume declined $34 billion from $112 billion in Q2-2019 to $78 billion in Q2-2020, however much of this volume was associated with transactions that were in process prior to the shutdown
  • Drawdowns on revolving credit lines, part of a broader dash for liquidity in the coronavirus-era capital markets, continued at full speed in the second quarter after kicking off in early March, coinciding with the full onset of the pandemic
  • For the first time since 2009, the second quarter produced more secured high-yield bond issuance than institutional loan volume, with loans accounting for approximately 45% of the total
  • Loan market distress remains high and lenders are preparing for increased amendment activity as seen by an uptick in downgrades.  Through June, 35% of the loan market by par amount outstanding at the facility level had received a ratings downgrade, representing $411.1 billion of the $1.169 trillion of rated loans at the end of 2019

Par Amount of Leveraged Loans in Payment Default or Bankruptcy ($bn)1

The High-yield asset class made a comeback in the second quarter amidst historically low fixed interest rates supported by the implicit support of the Federal Reserve

  • As the global pandemic set in during March, the Federal Reserve signaled to the market that it would undertake measures to encourage capital markets access for borrowers with liquidity concerns. Issuers are now taking advantage of more favorable bond market conditions spurred by the implicit support of the Federal Reserve
  • Against this backdrop, second quarter high yield issuance volume increased by 95.6% to $140.5 billion from $71.8 billion for the same period last year, with June setting a monthly issuance record

High yield Volume ($bn)1

Government support through stimulus programs

  • The Senate is planning to roll out a proposal that is expected to cost approximately $1 trillion. Lawmakers are racing to reach an agreement on the legislation within weeks, facing the expiration of enhanced unemployment benefits on July 31 and the beginning of a scheduled break on Aug. 7.
  • The proposal will include another round of direct payments to households, as well as funding for a vaccine and testing. The plan will likely aim to modify the Paycheck Protection Program to more closely target troubled businesses

High yield – Average New-Issue Yields1


  1. Source: S&P Loan Commentary and Data


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