European leveraged debt market issuance was up 61% year-on-year in Q3 according to an AFME report, reaching €147 billion – but fell 11% quarter-on-quarter (QoQ).
Direct lending issuances was up 80% YoY to €28.2 billion, and leveraged loan origination rose 102.5% YoY €86 billion. High yield issuance remained steady YoY at €33 billion.
While these yearly increases are considerable, all categories saw QoQ declines. As overall issuance fell 11%, direct lending and leveraged loan issuance dropped by 2%, and high yield origination by 33%.
A reduction of outstanding high yield bonds QoQ was the result of reduced issuance and the depreciation of the USD against other major currencies, AFME’s report says.
Interest in European leveraged loans has increased drastically over recent years, now representing 22% of overall global loan benchmarks.
Earlier this year, Bloomberg expanded its index for the instrument.
READ MORE: Bloomberg Indices capitalises on growing leveraged loan market
The majority of proceeds from leveraged loan and high yield issuances was directed towards refinancing and repaying debt, while direct lending proceeds were primarily used to finance bolt-on acquisitions and buyouts.
Direct lending activity was led by the UK and Ireland in Q3, which originated 27.2% of the 272 European deals of the quarter. The region still trails the US, where 440 deals were made in Q3.
AFME’s report states that European direct lending default rates will rise for the remainder of the year, reaching 2.25% by count. In 2024, this rate was 1%.
By volume, default rates are expected to jump from 2024’s 0.4% to 1.25% at year-end.
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