(The following statement was released by the rating agency)
Link to Fitch Ratings' Report: U.S. Leveraged Market Quarterly (Fourth-Quarter
2015)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=876680
NEW YORK, January 26 (Fitch) Mounting liquidity fears, slowing global growth
concerns, falling commodity prices, and equity market volatility have resulted
in a repricing of risk in the high-yield bond and leveraged loan markets,
particularly at the lower end of the rating spectrum, according to Fitch
Ratings' new 'U.S. Leveraged Market Quarterly (Fourth-Quarter 2015)' report.
The repricing of risk stunted activity in the second-half of 2015 as high-yield
bond issuance totaled only $78 billion compared to $174 billion in the first
half of 2015. High-yield bond issuance was pressured in particular by the
decline in deals from riskier credits. 'CCC' debt only represented 5% of
issuance in fourth-quarter 2015 compared to 20% in fourth-quarter 2014.
The option-adjusted spread (OAS) on the BofAML U.S. High Yield 'CCC & Lower'
Index (CCC Index) has widened to levels not seen since June 2009 as investors
have exited the riskiest tranches of debt while spreads for the BofAML U.S. High
Yield 'BB' Index (BB Index) are only marginally wider. As of Friday, Jan. 22,
2016, the OAS for the CCC Index was 1,812 bps compared to an average of 981 bps
the last six years. The OAS for the BB Index was 497 bps Friday, compared to an
average of 388 bps the last six years.
Leveraged loan issuance has seen similar pressure in the fourth-quarter. Fitch
identified 23 deals that were pulled from the primary during syndication as
issuers reacted negatively to investors demanding higher pricing and larger
issue discounts. October and November alone saw 10 deals, totaling approximately
$5 billion in institutional loan volume, pulled from the market. Pricing at the
lower end of the rating spectrum has lacked investor interest at current levels.
Thirty-nine upward flexes were seen in the fourth quarter compared to only nine
downward flexes. For 'B' credits, the average pricing on newly issued
institutional term loans increased 82 bps throughout the second half of 2015 to
487 bps.
As the market adjusts to increased risk premiums, we believe leveraged credit
fundamentals will remain largely unchanged from what is currently reflected in
our ratings and default expectations. While high-yield bond and leveraged loan
defaults are forecasted to rise, pockets of risk remain mostly isolated to the
energy and metals/mining sectors.
This quarter's report also highlights Fitch's 2016 U.S. Corporates Outlook.
Industry fundamentals are broadly stable with 26 of 34 sectors assigned a Stable
Outlook. However, with commodity prices hovering around recent historical lows,
four of the six negative sector outlooks are in commodities-related areas: Oil &
Gas, Midstream Services, Oilfield Services & Mining.
For more information, visit: www.fitchratings.com/usleveragedfinance.
Contact:
Michael Paladino, CFA
Head of U.S. Leveraged Finance
Managing Director
+1-212-908-9113
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
Hugo Sancen
Leveraged Finance
Associate Director
+1-312-368-2096
Media Relations: Alyssa Castelli, New York, Tel: +1 (212) 908 0540, Email:
alyssa.castelli@fitchratings.com.
Additional information is available on www.fitchratings.com.
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