Low coupons and financing spillover drive US high yield

Author: Danielle Myles | Published: 3 Feb 2011

The volume of high yield issued in the US reached a record high in January. Lawyers say this was driven by two things: more corporates taking early advantage of low coupons to refinance debt maturing from 2012, and a spillover of acquisition financings started last year.

Refinancings have been – and will remain for sometime – their staple, but work generated from new commitments has been marginally lower than expected. The main culprit is the leveraged loan market’s return to cov-lite lending.

"We are beginning to see maintenance covenants in bank facilities [being] not quite as tight, or being taken out completely leaving very few maintenance covenants in some senior term loans," says Bill Whelan, practice head of Cravath Swaine & Moore’s securities group. Sponsors need to provide a little more equity than five years ago, but otherwise they are getting similar loan terms.

Banks might also detract refinancings from the...