Regardless of a spike in vitality costs and chronic inflation, year-to-date leveraged mortgage exercise confirmed substantial positive aspects on 2020 ranges
International leveraged mortgage exercise sustained momentum constructed up by means of H1 2021 to publish regular year-on-year development over the primary three quarters of the 12 months.
Within the US, year-to-date leveraged mortgage issuance by means of the top of September 2021 was up 66% over 2020 figures, at US$1.1 trillion. In Western and Southern Europe, though exercise tailed off sharply in September, the European market nonetheless confirmed positive aspects of 19% year-on-year with issuance coming in at US$254.1 billion.
Total Issuance by worth Q1 2019 – Q3 2021
Instrument sort: Leveraged loans Use of proceeds: All
Location: Western and Southern Europe and USA Sectors: All Sectors
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Mortgage exercise within the Asia-Pacific area (excl. Japan) (APAC) was additionally wholesome, with leveraged and non-leveraged mortgage issuance up 9% year-on-year over the primary three quarters of 2021, from US$249.3 in 2020 to US$272.3 this 12 months.
Markets resilient regardless of difficult backdrop
The positive aspects in leveraged mortgage exercise come regardless of wider macro-economic volatility. On the finish of Q3, the Worldwide Financial Fund (IMF) revised its financial forecasts for 2021 downward, citing indebtedness, persistent inflation and low vaccination charges in some elements of the world. Surging vitality costs, deadlocks within the US by means of the summer season over elevating the nation’s debt ceiling and uncertainty in China’s actual property market fanned additional headwinds.
Whereas third quarter mortgage issuance cooled considerably, mortgage markets remained energetic. Refinancing was the primary driver, with exercise by means of the primary half of the 12 months significantly frenetic, as issuers took benefit of enticing pricing to lock in decrease charges and lengthen maturities.
The surge in these offers within the US, particularly throughout the first half of 2021, resulted in leveraged mortgage refinancing issuance virtually doubling year-on-year, from US$215.8 billion in 2020 to US$427.1 billion in 2021.
It was the same image in Western and Southern Europe, the place refinancing elevated from US$43.7 billion within the first 9 months of 2020 to US$95.1 billion in 2021 year-on-year. And in APAC, year-to-date leveraged and non-leveraged mortgage issuance for refinancing reached US$160.9 billion, up from US$147.6 billion throughout the identical interval in 2020.
Dividend recap exercise was additionally regular and was particularly sturdy throughout the first half of the 12 months. Within the US, dividend recaps for the 12 months to the top of Q3 2021 got here in at US$40.5 billion, nicely above the US$32.9 billion issued for this objective in all of 2020.
In Western and Southern Europe, dividend recaps reached US$5.7 billion within the first 9 months of the 12 months—greater than double the US$2.6 billion seen in 2020.
And in APAC, recap exercise of US$750 million to the top of Q3 2021 was already in keeping with the total 12 months complete of US$780 million posted in 2020.
Refinancing exercise, nonetheless, slowed by means of the third quarter as mortgage pricing edged increased and diluted the inducement to refinance early.
For instance, the typical margin on first lien institutional loans within the US climbed from 3.47% in Q1 to three.63% in Q3, prompting refinancing issuance within the area to drop from US$157.4 billion within the second quarter to US$107.1 billion within the third quarter.
In Western and Southern Europe, the place common margins on first lien institutional loans rose from 3.71% initially of the 12 months to three.86% by Q3, refinancing issuance fell from US$34.4 billion in Q2 to US$26 billion in Q3. And in APAC (excl. Japan), leveraged and non-leveraged mortgage refinancing issuance adopted the same path by means of the quarter, slipping from US$64.6 billion in Q2 to US$56.5 billion in Q3.
M&A surge lifts issuance
The dip in refinancing, nonetheless, was countered by climbing M&A exercise this 12 months—particularly within the US the place it reached document heights and in Western Europe the place it’s going robust—offering a strong platform for financing offers.
M&A (excl. buyouts) mortgage issuance within the US doubled year-on-year—from US$87.9 billion within the first 9 months of 2020 to US$174.8 billion in 2021, year-to-date—whereas buyout financing offers noticed the same surge, rising from US$70.8 billion to US$156.3 billion throughout the identical interval. On a quarterly foundation, loans backing US buyouts rose from US$55.5 billion in Q2 to US$76.3 billion in Q3.
Western and Southern Europe noticed the same uptick, with leveraged mortgage issuance meant for M&A (excl. buyouts) up 33% year-on-year, reaching US$44 billion for the 12 months up to now. Buyout issuance, in the meantime, grew by 46% in the identical interval, to US$49.7 billion by the top of Q3.
In APAC, leveraged and non-leveraged mortgage issuance meant for buyouts has these days seen a major spike, leaping from US$3.5 billion in Q2 to US$8.3 billion in Q3—the best quarterly complete for buyout issuance on Debtwire Par information.
M&A (excl. buyouts) issuance within the area, nonetheless, confirmed a really completely different image, dropping year-on-year from US$30.8 billion within the first 9 months of 2020 to US$18.7 billion in the identical interval this 12 months.
CLO urge for food for TLB debt undiminished
European issuance additionally benefitted from sustained urge for food for time period mortgage B (TLB) debt—longer-term debt tranches with little or no amortization—amongst buyers.
In accordance with Dealogic, European TLB issuance for the 12 months to the top of Q3 was second solely to the document ranges of exercise noticed in 2007. The pipeline for This fall 2021 is equally sturdy, placing the European market on observe to document its highest-ever price of annual TLB issuance.
The energy of the TLB market has been underpinned by demand from CLO consumers. The rise in European TLB figures has tracked the quantity of capital raised by CLOs, with TLB issuers counting on CLOs for financing greater than ever.
The market in APAC additionally generated document ranges of TLB issuance, climbing to an all-time excessive of US$7.5 billion in simply the primary 9 months of 2021. Yr-on-year TLB issuance within the area for 2021 was up 85.4% on the US$4 billion recorded final 12 months. Notable TLB offers in APAC throughout this era embrace AEA Worldwide, the Singaporean medical and journey help group pricing a US$700 million TLB. This continued into This fall, with India-based education-technology firm Byju’s US$1.2 billion five-year TLB, priced in early November.
Within the US, TLB exercise has confirmed resilient too. Healthcare firm Medline Industries, for instance, raised a US$7.8 billion TLB as a part of a US$14.8 billion bundle to fund its buyout by Blackstone, Carlyle and Hellman & Friedman. The deal was thus far the biggest to cost this 12 months within the US.
Demand from CLOs, nonetheless, has been inflated as CLO managers clear backlogs following the disruption attributable to the pandemic. The present uplift in TLB issuance might cool shifting into 2022 as CLO deployment schedules delayed by COVID-19 revert to regular.
The potential for tighter financial coverage and growing competitors from options to TLB financing—together with direct lending and excessive yield bonds—might additionally put strain on TLB issuance within the 12 months forward. For now, nonetheless, urge for food is holding agency.