The European high-yield market had a record year and set new issuance highs and coupon lows. European issuers sold $15.75 billion of euro-denominated paper in 53 deals in 2004, according to data from Thomson Financial, up from $8.52 billion in 30 deals last year. And last year's total was already more than twice the euro-denominated amount issued in 2002.
The extra supply was met by strong demand, squeezing new issue coupons to all-time lows. For instance, German scaffolding technologies specialist PERI priced its December deal at 5 5/8%, less than half the level of five-year average yields closer to 13%.
What is more, leverage in private equity deals rose significantly toward the end of the year, with the average increasing a notch over the course of 2004 from slightly over 4.5 times levered to a little above 5.5 times.
In the past, investors in European high yield were the European arms of U.S. based investors, along with a handful of banks and insurance companies, observed a high-yield salesman in London. "Now, credit hedge funds, convertible arbitrage funds, risk arbitrage funds and distressed debt investors have all joined the traditional high-yield players," he noted. And high-grade investors have been dipping into high yield, with some managers including up to 15% high yield in their portfolios, he said.