The second full week in January saw nine deals marketed and €4.2bn priced from Monday to Thursday — one of the busiest weeks ever for European high yield.
And for some, nine deals proved just too many. "We can’t look at all the deals in the market at the moment because we just don’t have the capacity," said a high yield investor in London. "I follow one deal through and then pick the next one [I have time for]."
The pace of new deal announcements last week also overwhelmed some rating agency analysts, so that some new rating reports came very late in the sales processes, said another investor. "It feels like 2007," he said.
"We have entered bubble territory," said Chetan Modi, senior vice-president of EMEA corporate finance at Moody’s, at a recent BNP Paribas leveraged finance conference.
"High yield investments are being driven more by market dynamics and less by credit risk. We are seeing strong appetite for PIK [high-risk, ‘payment-in-kind’ bonds] issues and banks are easily pricing Caa-rated paper below 9%. The typical spreads between senior secured and unsecured of 300bp have tightened to some 200bp," Modi added.
Bankers are scratching their heads as to why exactly the market is so much hotter now than it was late last year. "It becomes a fool’s market," said one high yield syndicate banker. "Nothing has really changed since December, apart from a bit more visibility on the US debt ceiling."
Some investors have similar concerns and are talking of being disciplined in their behaviour. "We are selective, do our credit work and sell some positions when we buy something new in primary," said an analyst at one fund.
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