Credit Markets Update Q2 2023

Read more about M&A activity and trends in this sector

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New-issuance loan volume continued at a slow pace during the second quarter as borrowers continue to feel the pressure of high debt servicing costs

Second quarter new issue leveraged loan volume reached $77.9 billion, down sharply from $131.3 billion in the second quarter of 2022, but recording the highest volume for past twelve months
- The leveraged loan market continues at a slow pace as borrowers seek new deals focused on debt repayment and maturity extension
Refinancing volume of $45.1 billion accounted for much of the new-issue volume in the quarter, albeit down 4% compared to the first quarter
- Over 74% of refinancing volume mix was composed of single-B rated issuers dealing with maturity walls
M&A activity continues to languish with $36.0 billion of issuance during the first half of the year
Private credit continue to be the financing of choice for buyouts, outpacing the syndicated loan market in LBO activity
- Private credit continues to be favored by private equity sponsors primarily driven by certainty of close as regional banks continue to be cautious
Default rates reached 1.4% for the first half of 2023, the highest level since 2020
- Borrowers expect to feel continued stress as covenants continue to be burdened with higher interest costs

New Issue Leveraged Loan Volume ($bn)

Count of LBOs financed in broadly syndicated vs private credit markets

High yield volume reached $93.6 billion during the first half of 2023, already approaching the $102.3 billion total of 2022

Second quarter volume of $53.6 billion marks a significant improvement over $24.7 billion during the same period in 2022
The average yield at issuance ended the second quarter at 8.7%, but not before testing a peak of 8.8% amid the top of the banking crisis

After ten consecutive interest rate hikes, the Federal reserve paused rate hikes in June to assess the policy impact before further tightening through the remainder of 2023

SOFR closely tracks the federal funds rate, and now remains above 5%
The Federal Reserve indicated the possibility of more rate increases, albeit at a slower pace, to combat inflation. The Federal Reserve remains committed to its 2% inflation target

We hope you find this information valuable, and as always, feel free to reach out if you would like to discuss in further detail. To read the full report, download the PDF below.