The pace of high-yield issuance downshifted in June and has been slow to get off the blocks in July, but only after the fastest start for the primary in three years amid a wealth of refinancing. The $18.5 billion of issuance in June was a six-month low, but handily topped the June totals last year and in 2022, according to LCD.
There haven’t been many breaks in the action as issuers bolster their maturity profiles. Issuance totaled $161.6 billion for the first half, in a near-even split across $85.2 billion in the first quarter and $76.4 billion in the second quarter. Volume blasted past first-half totals of $93.6 billion last year and $68 billion in 2022, while trailing 2021’s unrivaled $286.3 billion total, and 2020’s $212.8 billion.
Activity did slacken in June as prominent calendar events — including mid-month CPI and FOMC updates and the Juneteenth holiday — slowed momentum ahead of quarter-end. LCD data shows borrowers accessed the market in 68% of the month’s available trading days, down from 73% in May. The slowdown has persisted in July, with pricings failing to materialize in the first week of the month.
Adding $53.9 billion of institutional loan output to the equation in June, total leveraged finance volume was $72.4 billion in the month, down more than $10 billion from May.
Within high-yield, unsecured issuance continued to lead this year’s issuance revival. Unsecured issuance ($10.4 billion) topped the secured notes tally ($8.1 billion) for a fourth consecutive month. Unsecured issuance ($87.4 billion) accounted for 54% of total volume for the first six months, up from 39% over the entire year last year, which was the first annual minority share for unsecured issuance on record, per LCD.
As issuance patterns normalize, unsecured bonds accounted for 76 of the 120 tranches priced through June 30, or 63.3% on a rolling three-month basis. For context, that marks a swift rise from a recent low at 41% for the three months to September 2023.
Rate volatility persisted, as the 10-year Treasury yield dropped about a quarter point on the cool CPI update, only to give that back over the back half of the month. Even so, borrowers accessed the market at lower costs, abetted by steadily tightening new-issue spreads.
New deals in June cleared the primary at an average 7.66% yield, shaving off more than half a point from May. June’s deals included a few high-cost outliers, including Hertz Corp.’s par-priced $750 million placement of five-year, first-lien secured notes, printed at 12.625%. The paper is one of five issues this year this clear with a yield north of 12%, according to LCD.
Spreads contracted alongside retreating yields, achieving three-month tights for both unsecured and secured paper. New unsecured notes in June were inked with an average spread at T+309, and secured bonds at T+365.
Triple-C bonds accounted for 5.1% of total issuance in June, marking a seventh straight month with new CCC paper. This stands in contrast to last year’s record drought for low-rated paper, including zero-volume totals over the seven months through November 2023.
Single-B bonds accounted for the greatest share of issuance in June, at 36.1% of the month’s supply, following a 44.1% share in May. The ratings segment narrowly outshined a 35.5% allotment for BB paper, which was down five percentage points from one month prior. Issuance straddling the BB/B divide totaled 23.3%.
While refinancing remains the primary call to action for issuers, M&A/LBO-fueled financings staged a comeback of sorts. Issuance for the purpose (17.6%) ticked up from 3.3% in May, and it represented the largest showing for the carve-out since March.
Refinancings drove 75.4% of June’s volume to market, down from 95.2% in May. Year-to-date, refinancing activity at 78.7% (through June 30) remains in record territory. Supply supporting recapitalizations ticked up in June to 5.4%, following a shutout in May, while GCP issuance was largely flat at 1.6% of the total.
The asset class returned 0.92% in June, per the S&P US High Yield Corporate Bond Index, building on a 1.28% gain in May. High-yield has logged just one month of negative performance this year, and the total return through the first half is 2.72%.
Net inflows to high-yield funds slowed to a trickle in June. Investors have put $13.4 billion to work in the funds over the first half this year, after they yanked $10.8 billion from the funds for comparable 2023 period, and after YTD outflows of $35.5 billion in 2022 and $10 billion in 2021.
After a strong opening, price action in the secondary market moved sideways through the month, weekly assessments of LCD’s 15-name flow-name bond sample shows. June’s initial average bid reading was 91.58 on June 6, up from 90.09 at the end of May. The final reading of the month on June 27 was 91.51.
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