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Loans: High-yield hiatus could scupper loan recovery

Limited refinancing window; Bank lending capacity could fall

Given that the asset class returned 65% last year, the high-yield market can probably be excused a brief hiccup. And hiccup it has. With almost $2 billion reportedly pulled out of high-yield mutual funds in just two weeks in February, not a single deal was done in Europe in the last week of that month.

Whether or not this is an end to high yield’s incredible run or a spot of profit-taking, it has refocused attention on the moribund loan market and its inability to meet the refinancing cliff that lies ahead: 74% of funds raised in the European high-yield market last year were used to refinance bank debt.

Plugging the gap

High yield use of proceeds by volume, 2009

Source: European Credit Management

Loan volume for western Europe year-to-date stood at $23.8 billion at the end of February – its lowest level since 1999. Just 39 deals have been signed so far this year – the lowest tally since 1983 – a full 27 years ago.

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