The material on this site is for financial institutions, professional investors and their professional advisers. It is for information only. Please read our Terms & Conditions, Privacy Policy and Cookies before using this site. Please see our Subscription Terms and Conditions.

All material subject to strictly enforced copyright laws. © 2022 Euromoney, a part of the Euromoney Institutional Investor PLC.
Capital Markets

Too quick to PIK? The deals set to haunt European high yield

Participants in the European high-yield market say the collapse of Phones 4U, which left PIK-note holders wiped out, was a one-off event. But it serves as a stark reminder of the liquidity trap that lies in wait for yield-hungry investors chasing each other further and further down the credit curve. And it calls into question whether European investors have developed the necessary credit skills to invest in such risky assets.


He must have had better Monday mornings. Many investors in European high yield had a nasty shock on September 1 when Phones 4U, the UK mobile phone retailer and high-yield bond issuer collapsed.

But the investment manager responsible for City Financial’s Credit Opportunities Fund must have needed an extra shot of coffee, or something stronger. His fund held 4.7% of the entire portfolio in the Phones 4U Payment-in-kind (PIK) note that had been issued the previous September. The day before the company collapsed, its senior secured notes had been yielding 9% and the PIK 15%. Within a matter of days the latter was worthless.

This shocking episode encapsulates the kind of risk that investors at the riskiest end of high yield are taking on in increasing numbers the longer zero interest rates persist. The long-overdue equity correction at the beginning of the third quarter combined with growing nervousness over anaemic economic growth prospects for Europe triggered a bout of the jitters in European high yield in early September.

By mid-October there had been more than $25 billion of outflows from European equities – a record $5.7 billion during the week of October 15 alone – and a lot of that money was heading straight back into the bond markets.

You have reached premium content. Please log in to continue reading.

Read beyond the headlines with Euromoney

For over 50 years, our readers have looked to Euromoney to stay informed about the issues that matter in the international banking and financial markets. Find out more about our different levels of access below.


Unlimited access to and

Expert comment, long reads and in-depth analysis interviews with senior finance professionals

Access the results of our market-leading annual surveys across core financial services

Access the results of our annual awards, including the world-renowned Awards for Excellence

Your print copy of Euromoney magazine delivered monthly

£73.75 per month

Billed Annually


Unlimited access to and, including our top stories, long reads, expert analysis, and the results of our annual surveys and awards

Sign up to any of our newsletters, curated by our editors


Already a user?

We use cookies to provide a personalized site experience.
By continuing to use & browse the site you agree to our Privacy Policy.
I agree