High-yield monthly: July volume collapses to all-time low through market rebound

July produced best-of-times/worst-of-times dynamics for the high-yield marketplace, as beleaguered investors embraced the biggest monthly gains since the Global Financial Crisis, counterposed by the weakest July issuance volume on record, according to LCD.

July's bone-thin $1.8 billion issuance total, across just four tranches, marked a low for any month since December 2018, when the issuance total was zero. Per LCD records since 2005, it also supplanted the prior all-time low for a July period, which was $2.3 billion, recorded in July 2007. Last year, the high-yield primary turned out $30 billion of new-issue volume, a record high for the month.

Leveraged finance volumes were thin across the board in July, but institutional loan issuance was relatively higher, at $6.8 billion. That, nevertheless, marked a big downshift from the $66 billion of loan volume in July 2021.

Including single-digit volume totals in five of the first seven months of 2022, year-to-date high-yield bond volume through July 31, at $69.8 billion, trails the 2021 pace ($316.3 billion) by 78%. That light volume was across just 110 new-issue tranches over the first seven months this year, down sharply from a record 469 for the same span last year, and only narrowly ahead of the 105 tranches as GFC storm clouds gathered over the first seven months of 2008.

On a rolling 12-month basis, high-yield issuance continued lower to $218 billion through July, from $246 billion through June, and $359 billion through March this year. The all-time high is $529 billion, for the LTM period to May 2021.

The latest LTM total includes just $46 billion of completed pricings since February, a low for the six-month rolling total since issuers priced $27 billion for the GFC-era period to April 2009, LCD data show.

All four tranches of new-issue bonds in July ($350 million for Neogen on July 6, $710 million for Cornerstone Building Brands on July 20, a $50 million add-on for FTAI Infrastructure on July 21, and $725 million for Avient on July 27) backed M&A/LBO efforts or spin-off financing. The previous new issues that backed any other corporate uses were via refinancing-driven transactions completed on June 9.

For the first seven months of 2022, deals backing M&A, LBOs, or spin-off financing accounted for 35% of this year's pared-down issuance volume, versus full-year shares for the carve-out of 23% last year and 11% in 2020. The high for the last decade was 38%, in 2015.

Meanwhile, refinancing-driven issuance is less than 48% of new-issue volume this year, which is below all full-year shares for the carve-out since 2015, when refinancing accounted for 46% of the full-year total. For reference, refinancing-related deals were 63% of 2021's full-year total, 67%-68% of the totals in 2019 and 2020, and 62-65% of the totals from 2016-2018.

While trailing refinancing efforts through the pandemic helped push out the maturity wall for many issuers, remaining issuers with looming refinancing needs are eyeing daunting costs. Including double-digit yields at issuance for the notes from Cornerstone Building Brands (11%) and FTAI (12.008%), the average yield at issuance across July's four offerings was 9.69%, up from pricing yields on either side of 8% in May and June and 5.54% in January. The all-time low was 4.83%, in June 2021, and yields were last higher in any month in August 2014, when thin volumes that month produced a 10.2% average yield at issuance.

The rising issuance costs primarily reflect pricing outcomes for double-B and single-B issuers. Since April, the only triple-C offering stemmed from Intertape Polymer's June 15 offering of 10% senior notes, priced at an OID of 82% of par, to yield 14.361%. That issue traded below issuance for much of July, before a potent late-month rally lifted the notes to an all-time high at 84, to yield 13.86%.

That powerful market rally, weighted to the last two weeks of the month on either side of the FOMC policy statement, saw the average bid for LCD's 15-bond flow-name sample surge nearly five percentage points month-to-month from the 2022 nadir recorded at the end of June, alongside a proportional dollar-price gain for the S&P U.S. High Yield Corporate Bond Index.

In spread terms, the T+444 option-adjusted spread for the S&P index at the end of July marked a rally from a 2022 peak at T+553 on July 5, a high reading since July 2020. That spread was T+309 at the end of July 2021, and T+299 at the start of this year.

Those month-over-month gains produced a total return of 5.44% for the S&P index in July, the highest for any month since a 6.35% return in May 2009. That gain, though, followed on a blistering 6.17% loss in June.