Leveraged loan volume sharply decreased in 2022 amid significantly higher borrowing costs and increased recessionary risks to the economy
- Fourth quarter new-issue leveraged loan volume reached $59.7 billion, down sharply from $171.9 billion in the fourth quarter of 2021. Full year 2022 new-issue volume reached $436.0 billion, a dramatic decline from $798.0 billion in 2021
- Liquidity in the bank market receded in 2022. Higher rate-induced market-to-market losses and deposit base uncertainty placed pressure on bank capital causing a sharp decline in syndicated loan volume
- The mood is brighter in the private credit market where direct lenders have continued to gain share amid record amounts of dry power allocated to the asset class
- Refinancing volume did make a comeback in the fourth quarter. Higher-rated issuers chipped away at near term maturities, pushing volume to $21.5 billion, the highest quarterly total in 2022.
New Issue Leveraged Loan Volume ($bn)
Source: LCD Quarterly Q3, 2022: Volume: Quarterly US Dollar Denominated New-Issue Global Leveraged Loans. Pg 166
Count of LBOs financed in broadly syndicated vs private credit markets
Source: LCD Quarterly Q3, 2022
Higher interest rates continue to put downward pressure on high-yield bond issuance with the last six months of 2022 period recording the lowest post-global financial crisis levels
- Fourth-quarter issuance of $15.4 billion, down 78% year-over-year, compares with $70.2 billion for the same period in 2021
- The average yield at issuance was 10.4% in the fourth quarter, the first double-digit average for any quarter since 2009
High Yield Volume ($bn)
Source: LCD Interactive High Yield Report, Monthly & Quarterly Volume tab
The Federal reserve raised interest rates by 50 bps in December citing high inflation, bringing the target federal-funds rate to between 4.25%-4.5%. 2022 saw a total of seven interest rate increase from the Federal reserve
- The increase in the federal funds rate was mirrored by SOFR which has increased from 0.50% in 2021 to near 4.50% in 2022
High Yield - Average New Issue Yields
Source: LCD Interactive High Yield Report, Monthly & Quarterly Volume tab
Secured Overnight Financing Rate (SOFR)
Source: New York Fed; 90-day Term SOFR rate
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