With credit analysts predicting that overall levels of investment-grade corporate issuance in Europe will end the year even lower than they had previously expected, banks are turning their attention to the more lucrative and active European high-yield market.
Deutsche Bank and CSFB have between them cleaned up almost 40% of market share for European and international high-yield deals this year to date, according to Dealogic, but other banks are trying to take a bigger slice of the pie.
SG announced in mid-September that it was going to build out a European high-yield business over the next few months, focusing in particular on the media, telecom and leveraged market. It will be hiring a new team of high-yield capital markets, sales, trading and research staff, to complement the high-yield team the bank already has in New York.
At the end of September, BNP Paribas announced the appointment of Youssef Khlat as head of the high-yield capital market business in Europe and Michael Johnson as co-head of leveraged finance in the UK, what the bank described as part of a targeted expansion of these business areas. Bank of America is also expanding in Europe — it has hired three new bankers into its new leveraged finance business on the back of recent high-yield deal flow.
September has brought a healthy clutch of new euro-denominated high-yield deals from a range of different companies. Investors are also keen to buy up new European high-yield offerings at a time when investment-grade corporates are providing such slim pickings and there has been significant demand for all the recent issues.
However the European primary high-yield market has expanded rapidly in the past before contracting rapidly as investors have baulked at the prospect of a sudden rush of new supply. Some question whether the market is now sufficiently mature to sustain this rush of new issuance and support a viable business for an increasing number of intermediaries, particularly when high-yield spreads are already reaching historically tight levels.
Some bankers think it is and believe the European market is going to remain healthy over the next few months. "There's a decent pipeline of high yield for the next couple of months and we're seeing significant demand for this. The euro-denominated market is becoming an increasingly solid and deep market, with all categories of investors increasing their holdings of such assets," says Peter Charles, managing director of fixed-income syndicate at Citigroup.
For this reason, he says the European market is becoming more popular with US high-yield issuers. He cites the example of US paper and packaging company Crown Holdings which, with its €350 million issue in August, managed to achieve the lowest coupon on a seven-year high-yield bond in euros at 6.25%. It was also the biggest high-yield euro-denominated bond from a US issuer, and even though it was downsized from initial expectations, the company managed to tap this issue for another €110 million in September.