Leveraged loan issuance in the second quarter declined significantly as concerns mounted of an oncoming recession precipitated by rising rates, among other issues such as continued high rates of inflation, supply chain issues and geopolitics
- Second quarter new-issue leveraged loan volume decreased to $116.0 billion, a decline of 41% from last year’s quarterly volume of $196.0 billion, a six-quarter low
- Leveraged loan volume in the second quarter largely supported immediate M&A financing needs, which accounted for $55.6 billion, or 48.0%, of new-issue leveraged loan volume in the quarter
- Refinancing activity declined to $53.1 billion in the second quarter. During the first six months of the year refinancing volume reached $102.0 billion, a decline of 36% from the first six months of 2021
New Issue Leveraged Loan Volume ($bn)
Source: LCD_Quarterly_2021_Q4: Volume: New-Issue US M&A Quarterly Loans, Pg 187, 189
New Issue US M&A Loans ($bn)
Source: LCD Quarterly Q4, 2021: Volume: Quarterly US Dollar Denominated New-Issue Global Leveraged Loans. Pg 173,174
High yield issuance continued its downward trend from peak levels last year due to the rise in interest rates. Second quarter issuance declined to a 17-year low
High Yield Volume ($bn)
Source: Refinitiv LPC’s Asset Based Lending Stats FY 2021, Pg 2
- Second-quarter issuance of $24.7 billion, down 43% year-over-year, compares with $137 billion for the same period in 2021
- The second quarter printed a meager 36 new-issue tranches which is lowest for a second quarter since 2005
- The average yield for new-issuance was 7.65% in the second quarter, up 143 bps from the first quarter. In comparison, new-issuance yields stood at a record-low of 5.23% and 5.11%, respectively, for the second and third quarters last year
The Federal Reserve increased interest rates by 75bps in June and hinted at more hikes in the coming months depending inflation data, among other issues
High Yield - Average New Issue Yields
Source: LCD Interactive High Yield Report, Monthly & Quarterly Volume tab
- The Federal Reserves rate actions have caused a corresponding increase in Term SOFR, the new base rate used to price newly issued floating rate loans
- 3-month Term SOFR is now over 2.0%
- Despite the recent increase in interest rates, liquidity continues to be strong across the middle market as private debt funds have upwards of $250 billion of dry powder to be put to use
- Lenders are becoming more cautious with a possible economic recession looming, and scrutinizing cyclical sectors such as consumer discretionary goods and non-accretive use of proceeds (e.g. dividend recaps)
We hope you find this information valuable, and as always, feel free to reach out if you would like to discuss in further detail. To read the full report, download the PDF below.
