Reality bites for new high-yield issuers

Author: Danielle Myles | Published: 15 Oct 2014

A record number of first-time issuers have entered the European high-yield market this year.

They have been lured by flexible covenants and yield-hungry institutional investors. But many are hitting hurdles in preparing prospectuses, finding secondary market liquidity, and overcoming the cultural shifts in tapping a new asset class.

"Over last 12 to 18 months we have seen a huge number of first-time issuers, some of which come to market with Ebitda [earnings before interest, tax, depreciation and amortisation] levels of €25 to €50 million [$63.4 million]," said Muzinich credit trader Hugo Squire, speaking at the Association for Financial Markets in Europe’s (Afme) high-yield conference last week. "You wouldn’t have seen that two years ago."

These smaller companies are often hit hardest in by the transition from...