Deutsche Bank’s associate general
counsel in London and European debt markets legal practitioner,
Chronis Anoustis, explores the inexorable rise of the
Issuances of euro-denominated high-yield bonds have reached
record levels this year.
There has been $82 billion of high-yield issuance in the
euro market so far this year, up from $45 billion in the same
period last year, according to the data provider, Dealogic. The
regional market thereby now makes up 15.6% of the global market
– the highest proportion since the peak of the 2006
The market also saw a rare decoupling from its US
counterpart in July, as investors scrambled to increase their
exposure to the EU region.
Deutsche Bank's Chronis Anoustis assesses the sustainability
of such demand and explores how the global quest for yield is
impacting European debt markets.
Do you expect the recent upsurge in activity to continue in
the second half of 2013?
The new issues market has almost doubled so far this year,
making 2013 the busiest year since 2006. The expectation is
that the high-yield bond market will continue to be active into
the final quarter of the year and beyond. The market and the
investor base keeps growing and can be seen as having started
to come of age. Increasing numbers of European corporates,
whether financial sponsor-owned or otherwise, are expected to
use high-yield as a regular source of funding going forward.
The product is also increasingly used to fund acquisitions,
with vendors now more familiar with the process and willing to
assist in the preparatory work to enable the bonds to be issued
quickly, including before the acquisition completes.
process of bank de-leveraging should be positive for
the evolution of European leveraged finance"
According to Barclays research published in September, 28%
of activity year-to-date was from 54 debut issuers. During the
whole of 2012 there were 19 debut issuers, which represented
18.4% of the market. What's driving debut issuers to the
High-yield is part of the wider fundamental market trend of
companies in Europe switching from loans to bonds. The use of
high-yield bonds is enabling companies to diversify their
funding sources and extend their maturities and is proving
increasingly attractive to European corporates who have to date
relied solely on bank relationship lending.
Some issuers are also attracted by the greater flexibility
high-yield affords them, when compared to the terms of
traditional European bank lending. Financial sponsors have
historically been more familiar with the product, but
corporates are undoubtedly getting more and more familiar with
it now. If a company in a given business sector or market
enters the high-yield market, it can arouse the interest of
other companies in the same sector and help give the product
added momentum in those geographical markets and/or
How has this volume been affecting some of the bond
The market has been seeing packages that reflect the
position of the business, and if one looks at covenants as a
package, there have been some interesting trends. Take the
reduction in the length of call protection, where now
seven-year packages typically have three-year protection rather
than four. Some issuers have also been requiring portability
and increased ability to take dividends once the business has
reached a certain threshold. The high-yield market is
ultimately a market like any other though, that can ebb and
flow according to market conditions and credit-specific
To what extent are bond terms now appearing in revolving
Use of bond-style incurrence-based covenants is becoming
increasingly common in these sorts of facilities. The revolving
credit facility (RCF) is typically just a relatively small part
of a larger transaction involving a larger number of high-yield
bonds. This trend goes back to a 2004 high-yield bond deal
where this was first pioneered, thereafter having a moderate
run. Since 2009, however, there has been a huge increase in
RCFs being used in conjunction with all bond deals and it has
become much more widespread and actually rather mainstream as a
How has EU sponsors' increasing use of US markets to fund
EU acquisitions affected EU leveraged financing?
The European leveraged finance market has always been
influenced by trends in the US leveraged finance market. This
can be seen not only in the high-yield bond, which is itself a
long-established US financing technique, but also in the fact
that many European high-yield bond deals continue to attract
sizeable interest from buy-side investors based in the US,
alongside Europe-based investors. And now some European-based
sponsors have been accessing the big and liquid US market for
covenant-light term loans, which sometimes have high-yield
bond-style incurrence-only covenants and are also placed with
US institutional investors.
In May, Nomura predicted an issuer would come out with a
pure European cov-lite loan without the support of a US tranche
within the next 12 months. Is this is still likely?
There has been a kind of convergence of bond and term loans
in the US as noted above (and note that buy-side investors
there often participate in both types of deal), so this is
giving rise to speculation that the European markets might also
see something like this in the not-too-distant future. It is
certainly possible if the stability of the loan markets
continues, and this too may ultimately act to increase choice
further for issuers and borrowers in terms of the different
financing techniques and technologies available to them.
How do you expect Basel III implementation and the US
quantative easing taper to affect the EU leveraged financing,
high-yield and syndicated lending?
The continuing process of bank de-leveraging should at the
end of the day be positive for the evolution of European
leveraged finance, with institutional investors increasingly
stepping in to provide new sources of capital and liquidity for
corporates and financial sponsors, as they already do
extensively in the US, whether via the bond or loan markets.
Many market participants seem to continue to work on the
assumption that any US taper would only begin to take effect in
a meaningful way once the wider economy is in the right place
so as to withstand higher funding costs.
Associate general counsel in London, Deutsche
As associate general counsel in Deutsche Bank's
London office, Chronis Anoustis heads the bank's
inhouse debt team, covering high yield, leverage
finance, syndicated lending as well as export,
commodity and trade finance.
He joined Deutsche Bank in 2003 from Clifford
Chance, where he was a banking associate, to help
Deutsche Bank focus on its leveraged finance