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High yield sees increase in sponsor-backed supply

It is still early in 2018, but the opening part of the year has seen the largest market share for sponsor-backed high-yield supply since 2011. The European market has also generated a larger volume on this measure than its U.S. counterpart so far this year — the first time this has happened.

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The sponsor supply accounts for 47% of the year-to-date high-yield volume and 46% of deal count — the largest such shares since 50% in 2012 for the former, and 46% in 2015 for the latter. At €3.9 billion, the European volume is also more than the €3.6 billion-equivalent the U.S. market has hosted this year.

What's more, that 47% slice is greater than the average full-year market share stretching back to 2006. But despite a spike in 2015, the share of sponsored deals has declined from 39% in 2013, to 26% last year.

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Risk tolerance

Sponsors are turning to the bond market largely because of its greater risk tolerance, be it a willingness to take on storied credits and/or those from less-liked sectors, and this situation has led to sponsors using high-yield for both acquisitions and refinancings.

Some 38% of the supply came from straight refinancings, the most prominent of which was Algeco Scotsman Global Finance plc, which procures financing for modular space developer Algeco/Scotsman Holding Sàrl Meanwhile, acquisition-related financings accounted for 62%, including deals from Swiss coffee and snack vending machine provider Selecta AG (that was also a large refi) and U.K.-based financial services firm Lowell Group Ltd., while plastic packaging manufacturer Albéa SA issued the first pay-in-kind-toggle of the year to support PAI Partners' leveraged buyout, and U.K.-based gym operator Pure Gym took out a bridge loan supporting Leonard Green & Partners LP's LBO.

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Still, while it has been a stronger start to the year for sponsored bond deals than many players expected, the showing still pales in comparison to the loan market, where €14.7 billion of sponsored volume has been recorded, nearly 4x that of high-yield. Sponsors also accounted for 77% of the year-to-date loan volume.

Looking ahead, the bond market will keep hosting a decent amount of sponsored supply, but the loan market will see more.

On Flora Food Group's deal, for example, KKR & Co. LP is supporting its LBO with €3.9 billion of loans and €1.05 billion of high-yield paper. Still, at least high-yield will play a role here, as well as featuring in the sub debt for PAI Partners' LBO of soft drink and juice bottler Refresco Group NV (which also included roughly €1.9 billion-equivalent of loans that priced last year), the staple for paint and coatings producer Akzo Nobel NV's chemicals business, and the potential LBO of generic pharmaceutical manufacturer Zentiva NV.

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