Bangkok--24 Apr--Standard & Poor's
The issuance environment remained favorable, as corroborated by robust issuance activity in both high-yield and leveraged loan markets, even as the market remained concerned about fallout from the subprime mortgage segment, according to an article published on April 20, 2007, by Standard & Poor's. The report, titled "U.S. High-Yield Prospects: Back On Steadier Ground," said that a total of $224 billion was brought to market in the first quarter, of which 80% was attributable to leveraged loans.
"The pipeline of mergers and acquisitions continues to be active and, combined with dividend recapitalizations, is a key driver of issuance, rather than any visible pick up in business fixed investment," said Diane Vazza head of Standard & Poor's Global Fixed Income Research Group. "Continued heavy use of leverage in acquisitions-through the bond and leveraged loan channels-would eventually contribute to the deterioration of credit characteristics within these segments. We expect $145 billion in gross high-yield issuance in 2007, up from $135 billion in 2006, and another $565 billion in leveraged loan issuance in 2007."
Demand for high yield has proliferated across a much broader investor base in recent years, with new players, such as CLOs/CDOs and hedge funds, injecting enormous liquidity and contributing to spread compression. The advent of these nontraditional players, however, introduces a new element of uncertainty in terms of the high-yield segment's response to enhanced volatility or cross-correlation with previously unrelated market segments.
Ms. Vazza added "as we anticipated last month, spreads unwound much of their late February momentum in the absence of increased evidence of widespread deterioration in economic fundamentals, decreasing cash balances or eroding profitability for issuers in the speculative-grade segment."
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Media Contact:
Mimi Barker, New York (1) 212-438-5054, [email protected]
Analyst Contact:
Diane Vazza, New York (1) 212-438-2760