High-yield borrowers flocked to the market in September in the shadow of the impending elections — and through the first Fed rate cuts since 2020 — raising $36.7 billion, the largest amount in three years.
And while issuance has slowed in October, buoyant market conditions continue to float many more boats than in years past. Issuers have priced or announced 13 tranches of new bonds from Oct. 1-8, ahead of the full-month October counts in 2023 (10) and 2022 (6).
Efforts to sidestep potential volatility have led to few breaks in the action. Issuers printed paper in 18 sessions in September, utilizing 90% of the month’s available trading days. That steady pace has continued in October, albeit via reduced volume.
Total leveraged finance volume topped $106 billion in September, as loan issuance hit a multiyear high of $69.4 billion for the month. In the high-yield universe, secured bond volume — after retreating for several months as opportunistic senior notes issuers held sway — was $15.4 billion, the most since January. Unsecured issuance was $21.2 billion.
Receding borrowing costs and firming market conditions abetted the strong end to the third quarter. Bonds cleared the high-yield primary at 7.29% in September, on average, down from 7.88% in August and 9.37% in September 2023. On a monthly basis, paper last cleared with a lower average cost in August 2022 (7.28%). New-issue spreads moved in tandem, ending the month at T+360, after hovering around 500 bps one year prior.
While the share of shorter-dated issuance remains historically high in 2024 (down from record share in 2023), issuers appear more willing to lock in lower rates for longer as costs descend. For the 56 tranches assessed by LCD, 15 were printed as eight-year tenors versus nine in August, and seven sport maturities beyond eight years, ending an anemic stint for longer-dated paper. The number of bonds pitched with six- or seven-year maturities doubled month-to-month, to 14 tranches.
As a strong risk-on sentiment continued, bond placements in September were concentrated in the single-B ratings class, at 46%, and triple-C supply advanced to a 3% share, following zero visibility on the docket during August. Further up the ratings ladder, double-B paper at 29% was down substantially from a share of more than 40% one month prior, and BB/B notes accounted for roughly 20%.
Sponsors and shareholders continued to cash in, driving dividend-focused bond issuance to a 20% share in September, the highest monthly carve-out since 2019, boosted by deals for Alpha Generation, Help at Home, and Alliant Holdings.
Through September, high-yield volume supporting dividends this year totals $14 billion, of which $10 billion was sponsor supported. The year-to-date total is approaching figures last recorded in 2021. The ramp-up has maintained momentum in October, with Belron tapping bond and loan markets with cross-border debt, in part to fund the largest dividend recapitalization on record.
Refinancing-driven prints accounted for 70% of high-yield volume in September, up from 54% in August. M&A/LBO issuance accounted for 6%, and GCP 4%.
Focusing solely on refinancing efforts, issuers have put a huge dent in repaying near-term maturities. As of Sept. 30, the $11.1 billion of outstanding debt remaining due in 2024 is down $30 billion from the end of 2023. For bonds sporting 2025 due dates, companies have cut the amount outstanding to $62 billion, from $118 billion.
The asset class extended its streak to five months of positive performances, closing September with a 1.56% gain, per the S&P US Issue High Yield Corporate Bond Index. The total return for high-yield bonds through September this year was 8.03%, besting both leveraged loans (6.54%) and investment-grade bonds (5.32%).
Investors steadily added to bets on the asset class in the third quarter. Including a big $2.89 billion inflow to Morningstar HY funds for the week to Oct. 2 (the biggest weekly influx since mid-July), the four-week rolling average ($1.49 billion) held in positive territory for a 21st straight week as the fourth quarter commenced.
For the year, inflows totaled $29.82 billion ($12.69 billion into ETFs and $17.13 billion into mutual funds), after annual outflows of $3.69 billion in 2023, $29.77 billion in 2022, and $3.97 billion in 2021. The last year featuring inflows — investors put $40.83 billion to work in the funds in 2020 — also featured a dovish Fed.
The secondary market also reaped the benefits. With the FOMC meeting decision percolating in the background, the average bid price for LCD’s 15-bond sample of liquid high-yield issuers hit a year-to-date high on Sept. 19. The sample tacked on 134 bps to 94.93% of par, before declining modestly to 94.72 in the month’s final assessment.
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