European High Yield Market Rebounds After Six-Week Drought

Strategic Insights -

The European high yield market, which had been closed for six weeks in the second quarter, is showing signs of recovery. Despite the uncertainty surrounding the economic impact of last week's attacks in London, sources predict that Europe will witness issuance levels similar to 2004's 29.3 billion. Director at Fitch Ratings, Roger Coyle, expects a significant increase in volume in the second half of the year. In recent weeks, the market has shown "relatively robust" activity, with European high yield activity posting gains. The market gained 0.2% in the third week of June, bringing the year-to-date level to 1.7%. This increase in activity has led to a reopening of the primary market with a number of new deals pricing.

Key Takeaways:

  • European high yield market has shown "relatively robust" activity in recent weeks, with gains of 0.2% in the third week of June.
  • The market is expected to see a significant increase in volume in the second half of the year, with at least 7 billion in known deals waiting to come to market.
  • Several megabond deals, including those for Wind Telecomunicazioni S.p.A, TIM Hellas Telecommunications, and Amadeus Global Travel Distribution S.A, are waiting in the pipeline.
  • Issuers such as Cirsa Business Corp, Schieder Mbel Holding, and General Motors Acceptance Corp have already tapped the European high yield market in the third quarter.
  • Bookrunners may include US dollar tranches into larger deals to attract more investors, and structures for issues may need to be tailored to satisfy the current market tone, which is more credit-conscious.
  • An increase in issuance may help bookrunners improve their league table standings, as Credit Suisse First Boston has dropped from its top spot in Thomson's European high yield league table.

Statistics:

  • European high yield volume totaled $10.81 billion (9.07 billion) through the second quarter, a $3.23 billion (2.71 billion) increase from the first quarter 2005.
  • European high yield issuance is expected to end 2005 at or just below 2004's issuance level of 29.3 billion.
  • Citigroup led in European high yield issuance through June 30, having arranged 11 issues totaling approximately $2.17 billion (1.82 billion).
  • Deutsche Bank ended the second quarter in second place, having arranged eight issues totaling approximately $1.8 billion (1.51 billion).
  • Credit Suisse First Boston completed six issues totaling approximately $1.75 billion (1.46 billion) through the second quarter.

Sources:

  • Fitch Ratings
  • Thomson Financial
  • Deutsche Bank
  • High Yield Report and SourceMedia, Inc.