Notwithstanding the strong start in January, uncertainty due to the conflict in Ukraine and continued inflation dampened new-issue leveraged loan volume during the first quarter of 2022
- First quarter new-issue leveraged loan volume reached $149.0 billion, down sharply from last year’s quarterly volume of $228.0 billion. The month of January printed $72.7 billion, the second highest monthly total on record, before geopolitics, continued inflation, and rising rates dampened new-issue volume in February and March
- First quarter issuance was largely driven by M&A activity, with $91.1 billion printed in the quarter. Private equity-backed transactions accounted for more than half of M&A volume
- Opportunistic activity, refinancing and dividend recapitalizations, amounted to $40.6 billion during the quarter, or 27.2% of quarterly volume, the lowest level since the second quarter of 2020
New Issue Leveraged Loan Volume ($bn)
Source: LCD_Quarterly_2022_Q1: Volume: New-Issue US M&A Quarterly Loans, Pg 183
New Issue US M&A Loans ($bn)
Source: LCD Quarterly Q1, 2022: Volume: Quarterly US Dollar Denominated New-Issue Global Leveraged Loans. Pg 167, 168
Bond yields widened during the first quarter as investors shifted away from fixed rate assets amid continued inflation and expectations for higher interest rates
- After scaling record levels in 2020 and 2021, high yield issuance decreased significantly in the first quarter as investors were battered by rate volatility and geopolitics
- First-quarter issuance of $43.3 billion, down 71% year-over-year, was the lowest total since the fourth quarter of 2018. January witnessed the largest share of quarterly issuance at $24.0 billion
- Average new-issue yields for high-yield bonds stood at 6.22%, up 58 bps sequentially and 82 bps year-over-year, marking the first quarterly average in excess of 6.0% since the second quarter of 2020
High Yield Volume ($bn)
Source: LCD Interactive High Yield Report, Monthly & Quarterly Volume tab
High Yield - Average New Issue Yields
Source: LCD Interactive High Yield Report, 'Monthly & Quarterly Yields' tab; Bond ratings ('BB' and 'B') to be sorted from 'Interactive Volume & Yields' tab
In addition to the 25 bps rate increase announced in March, the Federal Reserve is poised to raise rates throughout the year to contain inflation, which has accelerated at a pace not witnessed in 40 years
- The minutes of the FOMC meeting indicate its intention to reduce its balance sheet by as much as $95 billion a month starting in May 2022. One market scenario expects 200 bps rate increases during 2022, of which a 50 bps increase could occur in the month of May
Footnotes
Source: Standard & Poor | Leveraged Commentary & Data.
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