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The corporate bond market has recovered its poise after the downgrading of General Motors and Ford, with June looking set to be the busiest month of issuance since early 2004. But while the turmoil of this year has passed, the lessons investors have learned could have a lasting impact on the market. Neil Day reports.

The subordinated debt market's resilience in the face of this year's credit market volatility suggests that it has ample capacity to absorb any supply resulting from the expected wave of M&A activity in the banking industry. Prospective bidders will, however, have to be ready to move at a moment's notice. Neil Day reports.

Private equity sponsors in Europe have been able to raise funds at record levels over the past five years and have had a relatively clear run at acquisitions with little competition from trade buyers. This, coupled with investors and bank lenders seeking high yielding assets, has given rise to an increasingly powerful asset class in Europe.

The rise of the payment-in-kind note market was almost as spectacular as its fall. From bursting on to the scene last year, some Eu2bn of Pik notes were issued in the first quarter of this year alone. However, by the end of May the new issue market for Piks was effectively closed, with most of the instruments issued in the first quarter trading well below par.

Buoyant demand for fixed income despite the low yield environment has resulted in strong demand for benchmarks from top credits. However, with the structured MTN market more challenging, frequent borrowers are not resting on their laurels but doing everything they can to hit the sweet spots of demand. Neil Day reports.

At the end of 2004 there was a seismic shift in the potential capacity of the European leveraged buy-out market. After Philip Green's failed phantom £9bn bid for Marks & Spencer's, private equity houses realised a super-jumbo buy-outs was within their grasp — as evidenced by the potential Eu12bn purchase of Spanish firm Auna. Has the buy-out market expanded for good as a result?

If private equity sponsors and their bank advisers do start to run out of new assets to buy, or to take fright at buy-out market multiples, there is plenty to keep them occupied as they look to exit or to recapitalise their investments.

The rapid evolution of the European leveraged finance market over the last three years has been driven in large measure by two key shifts on the buy-side: the wholesale move of hedge funds into the leveraged space and mainstream investors moving down the credit curve in search of yield. Behind much of the growth of the European leveraged finance market over the past few years has been the emergence of an increasingly influential, relative value investor base that is willing and able to participate across a broad range of asset classes. In that respect, says Leland Hart, executive director in the leveraged capital markets group at Lehman Brothers in London, the European investor base is looking more similar to its counterpart in the US, where institutions have historically dominated primary and secondary activity in the bond and loan markets alike.

Many market observers believed that once the high yield bond market returned to full health, mezzanine would start to disappear from leveraged capital structures. In fact almost the opposite has happened with borrowers highlighting flexibility as one of mezzanine's key attractions.

The speed with which the European high yield bond market re-opened after the Ford and GM downgrades has impressed observers who believe that Europe's high yield arena is at last becoming a more stable and dependable source of corporate financing. As Neil Day reports, this is good news for the issuers, investors and intermediaries that are set to launch Eu10bn of high yield debt over the coming months, much of which is LBO related.