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Industrials indulge an appetite for high yield bonds

Companies in the industrials sector flocked to the high yield bond market in 2020 to meet their financing needs. The market absorbed 88% of total high yield bond volume in the second quarter of 2020 versus just 12% for institutional loans, dropping slightly to 69% and 31% respectively in the third quarter.

The fourth quarter has thus far only had high yield issuance in the industrials sector, with no institutional leveraged loan activity.

The trend mirrors the wider leveraged finance market, which has seen a big move away from leveraged loans into high yield, as loan investors stay away from cyclical sectors.

Big deals

The largest high yield bond deal this year so far was ThyssenKrupp Elevator, backing Advent International and Cinven’s acquisition of the elevator technology and maintenance group. The jumbo deal had both loan and high yield bond elements, spread across euros and US dollars. It was allocated with a €1.1 billion senior secured high yield bond, a €500 million senior unsecured floating rate note, and €650 million senior notes, paying between 4.375% and 6.625%. The US$2 billion notes divided between senior unsecured and senior notes paid 5.25-7.265%.

The investment grade space had a bumper second quarter in the industrials sector, as companies sought liquidity in the face of widespread lockdowns globally, with over US$50 billion raised. Issuance has since come down significantly, with almost US$17 billion issued in the third quarter and just over US$1 billion this quarter so far.