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Popular high-yield bond market shrinks refinancing wall

Alice Murray
02 July 2013

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A new report has found that amend-and-extend activity has reduced the expected 2014-2015 refinancing wall.

According to new figures from Moody's, the amount of cumulative European unrated LBO debt maturing in 2014 has dropped to a new estimate of €50bn. Previously it was thought that there was around €100bn maturing in 2014. The decrease has been attributed to refinancing loans through the high-yield bond market, made possible thanks to a recent uptick in market demand for this product. The overall debt burden of unrated European LBOs has fallen since last year's report to €122bn from €171bn, with the number of unrated companies falling from 368 to 288.

"The easing of the refinancing burden reflects the ability of many highly leveraged, usually medium-sized, companies, to benefit from recent extraordinary market appetite for high-yield bonds to refinance their loans," commented Sebastien Cieniewski, assistant vice president analyst in Moody's corporate finance group. "An additional factor has been the significant amend-and-extend activity, reflecting the need for collateralised loan obligation (CLO) lenders to remain invested before their amortisation phases."

However, the report also revealed that the maturities of a stressed group of smaller and weaker companies may be left unaddressed as a result. Up to a quarter of the companies sampled in the study could default.

Despite a surge in high-yield bond issuance, the UK and German markets continue to have the largest amount of unrated LBO debt with €38bn and €23bn respectively. Spain and Italy have reduced their unrated LBO debt from €16bn last year to €11bn this year.

The retail sector accounts for the largest amount of unrated LBO debt with around €24bn outstanding, followed by services and manufacturing at €19bn and €16bn respectively.

The consumer products sector has been the most active in refinancing leveraged loans, reducing outstanding debt by 54%, followed by the media sector, which has reduced debt by 44%, and the services and healthcare sectors each by 36%.