Global Leveraged Loan and High Yield Markets at Standstill as Debt Sales Collapse

The glaring instability of the world’s financial markets with interest rates soaring, global currency markets quivering as central banks aggressively tighten monetary policy to temper persistently hot inflation. That is the story line but in reality, the central banks are trying to catch up to bond markets and have lost control through years of loose policy. Inflation is supply driven, the result of political and central bank mismanagement who are all about shifting blame. Underwriters are sitting on debt while market is at standstill with a necessary cautious approach gives even more clout to private credit. The affect sees global companies pulling more debt sales in the past six months than in all of 2020.

Private equity and venture capital deal volume fell to its lowest monthly totals in at least a year in May, with just under $53 billion in deals, which is down 30% from the year-ago period, according to S&P Global Market Intelligence. The total number of entries also fell nearly 18% year over year in May, to 1,652 from 2,005 for the same month in 2021.

Bloomberg reported over 70 deals have been postponed or canceled so far in 2022. Compare that with 37 during the full year of 2021, and 67 in 2020. This move is twofold the companies, used to cheap debt don’t want expensive debt. Banks for their part really don’t want the deals, given the difficulty of financing them and then selling them to investors.

“Banks, after struggling for weeks to sell leveraged buyout debt on their books, are now charging so much to finance new LBOs that they are effectively cutting themselves out of transactions. Walgreens Boots Alliance Inc. is scrapping its potential sale of the Boots drugstore chain in the UK, in part because rising financing costs have cut into the prices that bidders were willing to pay… Banks’ appetite to finance new deals has soured, according to bankers, as rising interest rates and an economic slowdown bring leveraged loan and high yield markets to a virtual standstill. With the market in such dire shape, banks are deliberately pricing deals with terms that are unattractive to most borrowers — effectively, swinging to miss — according to several bankers… What’s more, some bankers have been warned that losing money on any new leveraged buyout commitments could result in job losses, they said.” June 28 – Bloomberg (Claire Ruckin)

A similar piece in the Financial Times confirms the ‘sick nature’ of the banking and debt sector.

“Corporate fundraising cooled sharply in the first half of 2022 as a storm blowing across financial markets left bankers and corporate finance chiefs wary of issuing new stocks and debt. Businesses globally raised $4.9tn through new bonds, loans and equity in the first half of 2022, down 25% from the $6.6tn raised in the first half of 2021 — a record-setting period, according to… Refinitiv. The chill in capital markets underscores a powerful shift from exuberance to trepidation this year as central banks aggressively tighten monetary policy to temper persistently hot inflation.” July 1 – Financial Times (Joe Rennison, Eric Platt, Nicholas Megaw and Kate Duguid):

Source: Bloomberg, Financial Times, S&P Global

From The Trading Community Research Desk