The wave of high-yield bond issuance triggered by Fed-backed liquidity in April 2020 still shows no signs of cresting, even as long-term Treasury rates spike and the floodgates reopen for the leveraged loan sector. High-yield issuance for the year to March 18 totaled $130.5 billion, surging well ahead of the previous record first-quarter pace, the $88.2 billion priced over the comparable period in 2012, according to LCD.
March issuance, at roughly $41 billion through March 18, is poised to topple yet another monthly record, the $42.9 billion priced in March 2017. Since May 2020, monthly totals have either set records for those respective periods, or they have landed in second place of all time. January's $51.9 billion total marked a record for that month by a wide mark (besting the second-place total of $38.2 billion, in January 2020), and the $37.3 billion last month missed hitting the February record, set in 2012, by just $151 million.
The dramatic inflection higher for interest rates this year has sounded the alarms for issuers looking to term out their maturity profiles at low costs. Roughly $105 billion of the year-to-date high-yield issuance total backed the repayment of existing debt, up from $55.7 billion over the comparable year-ago period and just $32.6 billion for the same 2019 span. On its own, that 2021 refinancing carve-out amount is more than the total high-yield issuance volume for any year-to-date period to mid-March.
In terms of the share of total issuance volume, refinancing accounted for 80% of total issuance to March 18 this year, also a record high.
When the high-yield primary markets reopened last April, after a near full stop in March 2020, the bulk of proceeds initially were directed to shoring up balance sheet liquidity. Refinancing had rebounded as the dominant use of funds by June, but that surge reflected issuers looking to repay emergency draws under committed bank facilities in the early days of the crisis.
But issuers now, sensing materially higher refinancing rates coming down the road, are undertaking broader efforts to refinance their capital structures. And no wonder: While underlying rates may be surging higher, high-yield borrowers continue to lock in historically low costs. The average yield at issuance for deals priced so far this month, to March 18, was a thin 4.91%, down more than half a percentage point from the monthly averages in January and February, and versus the full-month cycle low at 5.15% for the relatively limited number of deals priced in December 2019.
And issuers are favoring longer-dated bonds to take advantage. So far in the first quarter, 60% of the completed deals, by count, carried final maturities of eight years or longer. In the early months of the pandemic, from April to June 2020, just 28% of deals carried those longer maturities, as issuers favored five-year issues to limit their exposures to high crisis-era coupons.
Among recent bond-for-bond refinancing efforts, Yum! Brands Inc. placed new 4.625% notes due 2032 to take out a higher-coupon 5.25% issue due 2026. Macy's Inc. placed new 5.875% notes due 2029 to fund a tender offer for notes due 2022-2025. Avis Budget Car Rental LLC earmarked proceeds from a new 4.75% issue of notes due 2028 to take out a 6.375% issue due 2024.
Meanwhile, many other credits most directly impacted by the pandemic have returned to the marketplace to refinance debt at sharply lower costs relative to prior crisis-era prints. Alongside a new $3.5 billion 7-year term loan, American Airlines Group Inc. on March 10 placed an upsized $6.5 billion senior secured bond offering across 5.50% notes due 2026 and 5.75% notes due 2029. Those coupon rates were less than half the 11.75% coupon the airline printed last June for secured notes due 2025.
Cruise operator NCL Corp. Ltd. — which in July 2020 paid up to place 10.25% secured notes due 2026 — returned this month to reopen a 5.875% senior unsecured issue it priced in December and to place new 6.125% senior notes due 2028 to pay down credit-facility borrowings.