U.S. high-yield borrowers capped a record first half of the year, placing $39.5 billion of new supply in June — the second-highest total for a June period — as borrowing costs forged new lows, according to LCD. The $60 billion logged in June 2020 remains the record total for a single calendar month.
June's total extends an impressive streak: since May 2020, monthly issuance totals have represented either the peak or second-highest amounts for each of the respective calendar-month periods. The June 2021 sum now ranks as ninth-highest for any monthly total on record, according to LCD. For reference, there was $48.4 billion of issuance in May 2021, a record high for that calendar-month period.
June’s completed supply pushed issuance for the first six months of 2021 to $286 billion, blasting past the prior first-half record of $213 billion set last year. The $137 billion of issuance for the second quarter moderated from a record-high quarterly amount of $149 billion for the first three months this year.
Total leverage finance volume ticked higher to $97.9 billion in June, from $83.1 billion at May’s close. Floating-rate issuance gained traction during the month, with leveraged loan volume accounting for $58.4 billion of the combined sum across loans and bonds to reflect a near 68% increase month-to-month.
As a result of the surge, secured bond issuance was logged at a slim $7.9 billion, the lowest monthly sum for the segment in four months. The current historical monthly record for secured bond prints was established with April’s $26.1 billion, which was bolstered by issuers pitching bonds alongside concurrent loan issuance in a hunt for the most favorable deal terms. May featured some $16 billion in secured bond prints.
The allure of sinking borrowing costs continues to draw prospective issuers to the high-yield market. In June, the average new-issue yield finalized at 4.83%, an all-time low, down 45 basis points from May’s closing level and 32 bps from the pre-pandemic low set in December 2019 of 5.15%.
Within this metric, both secured and unsecured bond prints established new tights, at 4.59% and 4.90%, respectively. Notably, on a quarterly basis, a record-low 5.50% yield was averaged across the roughly $50 billion of secured bond prints for the second quarter, which compares with the prior low bar at 6.00% in the third quarter of 2015. Indeed, the secured bond volume trailed only the record-high $55 billion amount for the second quarter of 2020, when the leveraged loan market stayed largely shuttered in the face of the Fed’s scramble to maintain low rates.
Across ratings classes, observations show tightening across new-issue single-B yields with an average 5.19% in June, hitting a pre-pandemic level last observed in February 2020, and sinking 76 bps from May. Double-B prints were inked with a 4.05% average yield, widening 27 bps month-over-month.
Against the low-yield backdrop, capital structure revamps remain the driving force of issuance. Some 64% of June's issuance was steered towards refinancing efforts, boosted by large prints completed for SoftBank Group Corp., Sirius XM Holdings Inc. and Bombardier Inc.
The carve-out for M&A/LBO prints has sustained the increased presence observed in recent months, holding a 25% of the month’s output, aided by the inclusion of bonds in the financing package for At Home Group Inc.’s buyout by Hellman & Friedman, and Centene Corp.’s acquisition of Magellan Health Inc. The $36.8 billion of M&A/LBO volume in the second quarter this year marks a record high, ahead of the prior peak in the second quarter of 2015 ($33.2 billion), which capped a record four-quarter run for such issuance, totaling $119 billion.
First-time borrowers continue to access the high-yield market at a fast clip, with year-to-date debut issuance totaling nearly $56 billion through June 30, compared to $72 billion for full year 2020. MicroStrategy Inc., in completing its initial fixed-rate bond print concurrently, also sold the first-ever high-yield notes supporting the purchase of Bitcoin currency.
U.S. high-yield funds reported a net inflow of $893 million for the final week of the second quarter (through June 30), following on a $189 million inflow over the previous week, according to Lipper. The inflows capped a redemption-heavy first-half where withdrawals totaled $15.7 billion, reflecting outflows in 18 of the 26 weeks, including a streak of seven straight weekly outflows to June 16.
Strengthening bond prices in the secondary market amplified the risk-on bias across the leveraged finance marketplace. As the average bid for LCD's 15-bond sample of liquid high-yield issues advanced during the month, the final assessment on June 24 was logged at 106.96% of par and a 3.62% yield to worst, at T+293, following 106.93 readings on both June 17 and June 10. The average bid stood at 106.21 in the final days of May. The initial July reading for the sample shows a further rise in prices, to 107.49.
Per the S&P U.S. High Yield Corporate Bond Index, the T+292 option-adjusted spread on June 24 marked a low since February 2018, versus spreads of T+350 at the start of this year, and T+591 at the end of June 2020. (The pandemic-era peak was T+1,020, on March 23, 2020.)