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It's loan-ly at the top for retailers in distress

While Europe's e-commerce sector is in fine fettle, many in the wider retail industry have seen better days—in the debt markets at least. The sector holds the dubious honour of topping Debtwire's Distressed Watchlist and is taking an increasing share from other segments that have been left relatively unscathed by the pandemic.

When bonds and loans trade at levels below 90% of their face value they are added to the Watchlist. Over the past two years, retail issuers have nearly doubled their share of the list. Back in Q2 2019, retailer bonds made up only 17% of the total number of those listed on the bond watchlist. In Q2 2021, they made up an unhealthy 31% of the list.

Energy bonds are another point of weakness, accounting for 17% of the list two years ago and 23% today.

Distressed out

It's been a similar story in the loan markets, where retail also leads the league of distress. The sector has gone from claiming 30% to 27% of distressed loans in the same period, still well above any other industry. This comes after a lull amid the pandemic, by virtue of loans across the board losing value and resulting in a more balanced sector picture. But this was short-lived.

One major difference between the loan and bond markets is that energy issuers are in third position and industrials are in a distant second place to retailers. As of Q2 2021, 14% of European loans that are more than 10% below par are from within the industrials sector, a far cry from the 27% of retail loans that are in the same position.

Priced up

There is some positive news, however. The watchlist shows that the monthly weighted average loan price is climbing. It's been an exceptionally bumpy ride. The onset of the pandemic and fears over new variants, both of which shook markets, led to steep falls in distressed loan pricing.

But since April, the average price has hovered between 66 and 69.3, levels not seen since prior to the pandemic. It's also important to note that the number of distressed European companies is falling, from 561 in H1 2020 to 374 in the first half of this year.

Things seem to be looking up, then, even for retail.