The European high-yield bond market has notched up its second-highest annual volume ever, comfortably beating median analyst forecasts from the end of 2024 despite a tepid backdrop for private equity dealmaking.
Through Nov. 25, LCD tracked broadly syndicated European high-yield bond sales of €120.6 billion — nearly 23% ahead of the full-year tally for 2024, and currently behind only the €125 billion record annual total set in 2021.
“We were predicting an uptick in supply, but never expected it to be near 2021 levels, when all-in yields were so much lower,” said Tom Ross, head of high yield at Janus Henderson Investors. “It feels like we have normalized at this level, and have left behind the boom and bust of 2021 and 2022.”
After a steady if unspectacular start to the year, high-yield primary issuance hit an all-time monthly record in June, and also posted a new quarterly high in Q2. The surge in activity in May and June followed a three-week primary market hiatus after the US tariff announcements in early April — with issuers revisiting stalled refinancing plans, and banks accelerating underwritten mandates in case of further market volatility.
Refinancing drive
Like the rest of the year, the deal rush after the late-April market recovery was driven primarily by refinancing — but supply was also boosted by a record flow of bonds to fund shareholder dividends. According to LCD, the €74.6 billion of deals issued to refinance debt for the year through Nov. 14 amounts to the largest-ever refinancing drive in Europe on an annual basis.
Buyout-related supply fell compared to last year, however, with 2025 hosting just four sponsor-backed LBOs in the high-yield market, versus 12 in 2024. Looking at the broader volume reading, M&A/LBO volume is €15.2 billion in the year to date, down from €21.2 billion in the same period last year.
“I would have guessed at the start of the year that to get to where we are in volume terms, there would have been a lot more M&A and LBOs, but it shows the strength of the technical picture,” said Jonathan Latham, head of high yield capital markets Europe at Societe Generale, of the bumper high yield volume tally for 2025. “The more refinancings there are, the stronger that technical becomes — because as an investor, it’s difficult to opt out.”
Many issuers that had delayed refinancings of fixed-rate debt across the last few years have rushed at the chance to do such deals in 2025, amid a growing consensus that European rates will not fall at the same pace as previously expected. Average yields in the current quarter are running roughly 150 bps and 170 bps wide of 2021 levels for double- and single-B new issues, respectively, but credit spreads have traded close to 2018 levels.
“Bonds put in place during the post-Covid QE period are now three or over four years old, so we are at the point where treasurers want to refinance,” explained Latham at Societe Generale. “If you are refinancing a legacy bond with a new bond at 4.50%, that is better than where we were this time last year, plus there is now a year’s less maturity on your existing bond.”
Window shopping
While supply has found a more manageable run-rate after the frantic pace in the second quarter, periods during which yields have dropped substantially have yielded frenzied fundraising windows. Up until the summer, only seven new issues had priced at a yield with a 4% handle or below, but a strong window in September saw five deals price below that level in one week alone. “Issuers aren’t too worried that the market will close — they are just hyper-focused on price,” added Latham.
From an investor point of view, a primary market focused primarily on recycling existing debt — even at slightly higher interest rates — has caused a headache against a backdrop of almost consistent inflows into European sub-investment-grade funds. That supply-demand imbalance is evident in the size of the investable universe of euro-denominated high yield bonds, which (as measured by the Morningstar Eurozone High Yield Index) has grown 1.3% this year, but is still 25.7% below its level at the beginning of 2022.
Janus Henderson Investors’ Ross said that fixed maturity funds have been the main catalyst driving this demand, with large multi-asset fixed income funds having increased their allocation to sub-investment-grade debt to maintain their yield as returns on investment-grade products declined. As well as careful security and sector allocation, Ross said taking part in pre-marketing processes and the increasing number of private placements can be a good way to source assets and boost returns.
LCD News has this year tracked roughly €5 billion of what is anecdotally said to be a record year for private bond placements, issued through a mixture of mostly fungible taps that sources say typically price at a roughly 100 bps discount to prevailing secondary market prices. “Private tap deals are effectively the syndicated market adapting to the disruption to make it more attractive for issuers,” explains Ross. “They’re a great opportunity because you can do deals without any material liquidity shortfalls due to either a 40-day or in some cases immediate fungibility.”
Private push
While sponsored deals account for a modest 38% of high-yield issuance in the year to date, private equity has also proved to be a vital source of net new issuance this year.
The primary source of net new investment opportunities has been dividend deals, with LCD tracking €11.6 billion of transactions with a dividend component, surpassing €9.9 billion on this measure in 2021. As well as payments to shareholders tagged on to bond refinancings, 2025 has also seen large standalone dividend deals such as those from Froneri, Urbaser and Verisure.
“There have been a number of debuts, including from sponsor-owned businesses,” said Jennifer Engelhardt, capital markets partner at Latham & Watkins — referring to a trend which has seen the European high-yield market post the second-largest annual volume from first-time issuers. “What’s interesting is that it’s not driven by LBOs, but existing portfolio companies looking to shift into the high yield and syndicated market.”
Adapt and survive
Meanwhile, holdco PIK deals — which have totaled €2.22 billion this year — demonstrate how the high yield market has adapted to fit sponsor needs against a difficult backdrop for exits. Urbaser, for example, borrowed from a structure that was trailed in the dollar market by sponsor Platinum Equity. The Spanish waste management firm in August raised €1 billion through euro and dollar PIK-toggle bonds, hot on the heels of a bond debut that also supported a dividend after a shelved sales process.
“Where private equity exits have been more difficult in recent times, the high yield market has evolved technology to better bridge to that exit, and has been there to support sponsors and enable returns to their funds,” said Matthew Schneider, a partner at Latham & Watkins in London who has advised on PIK transactions for both Urbaser and Verisure this year.
Verisure brought an even more innovative structure with a €1 billion PIK-toggle bond that was the first-ever deal in Europe to be secured against a minority stake in a company, and followed a €13.7 billion Stockholm listing in September. Sponsor Hellman & Friedman did not sell-down any of its shares as part of the IPO, but monetized its stake in the Swedish alarm group via bonds issued through a company that holds its 43.7% Verisure stake.
Hybrid vehicles
PIK structures also fit into a broader subordination trend that has seen three issuers with high yield senior ratings raise hybrid debt in euros for the first time this year. This trend — started by France’s Seche, and continued by Softbank and Vivion — opens up another way for investors to generate additional yield without having to buy credits with weaker senior debt profiles. “It’s welcome that we are seeing so many different types of subordination, because it provides opportunity,” said Ross at Janus Henderson.
More-vanilla bond financings also demonstrate how the high-yield market has adapted to a challenging backdrop for PE dealmaking. While many transactions have seen pushback on documentation — mainly focused around high-profile US restructuring case studies such as J.Crew, Chewy and Serta — call features that give sponsors flexibility around a sale or IPO are becoming increasingly common.
For example, having rarely been seen since early adopters Adler Pelzer, Dometic and Very Group first introduced the provision, IPO calls at 102 have been used by several issuers this year including DeepOcean, Golden Goose, Modulaire, Stada and Techem.
In an environment where the increasing prevalence of portability in loans is making the floating-rate asset class even more appealing to sponsors, such provisions underline the appeal of a high-yield alternative. “Soft call flexibility on term loans always made loans more attractive to sponsors looking at near-term exits for a portfolio company,” said Engelhardt at Latham & Watkins.
Engelhardt adds that IPO calls at 102, and “strategic sale” calls have made bonds “equally competitive for a business that may want to de-lever for an IPO or sale to a strategic buyer in the next two years.”
Featured image by Yuichiro Chino/Getty Images
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