We have updated our privacy policy and terms & conditions. Find out more here.

High Yield Debt Issuance In 2012 Hits An All-Time Record

By  |  Bonds  |  Nov 11, 2012 06:29AM GMT  |   Add a Comment
High Yield Debt Issuance In 2012 Hits An All-Time Record
By   |  Nov 11, 2012 06:29AM GMT

High yield bond issuance hit an all-time record in 2012, with $306 billion worth of new HY bonds coming to market by the end of October. In fact September was an all-time record month for new issue - on the back of the Fed's latest action.

HY issuance
HY issuance

Leverage finance space as a whole also hit a new record. Adding new issue HY bonds and institutional loans (see discussion) puts 2012 ahead of 2007, the previous record.
HY and Loan Issuance
HY and Loan Issuance

Demand for yield remains strong, pushing non-investment grade yields to record lows.
HY Index yield
HY Index yield

One of the reasons for this optimism has to do with new issue market pushing out the leveraged finance maturity wall, as companies refinance into longer maturities. Back in 2009 the wall looked quite scary (see this post from 2009), with the largest concentrations of maturities in 2013 and 2014. But the markets have been chipping away at those two years. This reduced the risk of near-term liquidity problems in case the HY new issue market suddenly dries up, lowering expected default rates in the near-term.
Maturity wall
Maturity wall

We are, however, starting to see some signs of speculative primary market activity. According to JPM, six toggle notes have been issued in October ($2.6bn). These are debt securities that give borrowers the option to skip coupon payments, increasing the face value of the debt instead (payment in kind or PIK). It is roughly the corporate equivalent of option ARM mortgages. Also October saw 11 so-called dividend deals in which the proceeds from a bond sale are used to pay a dividend to the shareholders.

This is considered a more risky transaction because rather than using cash to refinance existing debt or acquire a business, the company simply pays it out, causing its leverage to increase. In the mortgage world this is the equivalent of using a home equity loan to take a vacation rather than to put an addition to the house or to repay credit card debt.

In spite of some of the more risky transactions, on average the deals have been far less speculative in nature than during the 2006-07 period. This trend of potentially loosening lending standards (such as toggle notes or dividend deals) in the leveraged finance markets will be important to watch going forward.

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data .

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Add Chart to Comment
Are you sure you want to delete this chart?
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Are you sure you want to delete this chart?

Successfully Reported

Thank you. This comment has been flagged for a moderator.