Credit markets update Q4 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

Credit Markets Update

Market conditions continued to stabilize during the second half of 2020 with the gradual reopening of the economy. This further drew borrowers off the sidelines leading to a recovery in the loan market.

  • New issue loan volume rebounded slightly from $89 billion in the third quarter to $94 billion in the fourth quarter, driven by stabilizing conditions and increasing investor demand
  • After two consecutive quarters of decline, loan volume for acquisitions rebounded sharply with issuance for both M&A and LBO volume at record levels during the quarter. The market enters 2021 with a strong M&A pipeline, indicating a strong new issue market 
  • In addition, opportunistic loan issuance continued to remain strong, with sponsors tapping the market for dividend recaps
  • Despite initial fears, the leveraged loan market default rate avoided a more painful default wave, supported by liquidity from central banks. Default rate ended the year at 3.83%, as compared to 4.17% at the end of third quarter of 2020

Dividend or Stock Repurchase Loan Volume

Quarterly ($bn)

New Issue US M&A Loans

Quarterly ($bn)

Federal Reserve support has resulted in a sharp contraction in bond yields and spreads, and has encouraged companies to take advantage of historically low bond yields

  • While the gradual economic recovery has eased liquidity concerns, companies continue to tap the bond market, taking advantage of lower borrowing costs to refinance debt and extend maturities
  • 2020 high-yield bond issuance increased ~60% to $435 billion from $273 billion in 2019, breaking the previous high of $345 billion issued in 2012

High Yield Volume ($bn)

With a strong end to the market in 2020 and a robust pipeline, there is general optimism in the credit markets for 2021. Further economic recovery and Covid-19 vaccine distribution are central to this outlook

  • In December 2020, $908 billion Covid relief legislation was signed into law that includes assistance to households and businesses, as well as funding for vaccine distribution and more

High Yield - Average New Issue Yields


Source: Standard & Poor | Leveraged Commentary & Data.




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