Fixed Income Forum

High Yield Bond Issuance Hits Drastically Low Volume Amid Rising Borrowing Costs

Submitted by Andrew Robertas.

After an extreme influx of new issues in 2021, rising interest rates and geopolitical turmoil have seen a significant reduction in high yield debt in 2022. Beginning in Q1, high yield issuance of 47.27B marked a reduction of nearly 70% from Q1 a year ago (Figure 1).

The lower debt issuance trend has continued throughout the fiscal year, specifically in line with the Fed gradually raising interest rates to combat inflation. Despite a couple of large deals from Citrix-Tibco and Royal Caribbean Cruises LTD to round out September, Q3 2022 saw another significant contraction in high yield issuance with just 18.5B USD (Figure 1).

Top 10 High Yield Deals by Volume 2022

RANK COMPANY NAME COLLATERAL TYPE AMOUNT ($B)
1 Tibco Software Inc. Senior Secured Notes 4000
2 Carvana Co. Senior Notes 3275
3 Intelsat Jackson Holdings SA N/A 3000
4 Athenahealth Inc. Senior Notes 2350
5 McAfee Inc. Senior Notes 2020
6 Tenet Healthcare Corp. N/A 2000
7 Royal Caribbean Cruises LTD Senior Notes 2000
8 Ford Motor Co. N/A 1750
9 Entegris Inc. N/A 1600
10 CHS/Community Health Systems Inc. Senior Secured Notes 1535

The Citrix-Tibco deal, issued via Tibco Software, backed a large leveraged buyout, and marked the single largest deal of the year (Table 1). Similarly, Royal Caribbean produced the seventh largest deal of the year to refinance debt that is coming due in the next twelve months. These two issuances combined for 32% of all high yield debt in Q3 2022 (Figure 2).

Like amount issued, the staggering difference between 2021 and 2022 for new issues can be shown by bond count. As is readily seen below, the comparison between total issuance by amount (Figure 1) and bond count (Figure 3) is nearly identical. Although the average size of bonds is relatively unchanged, the overall count decreased by 80% from this time last year.

As of now, the Fed has signaled two additional rate hikes in the coming months. With this, borrowing costs will continue to rise, and the current trend in high yield new issuance is likely to continue.

Data provided by Solve Advisors Inc

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