Credit Markets Update Q3 2024

Although leveraged loan market activity slowed in the third quarter, the rate cuts by the Federal Reserve should provide the spark needed to reignite the markets

• Despite coming in as the slowest quarter of 2024, third quarter new-issue leveraged loan volume nonetheless reached $144.7 billion, a significant increase from $102.9 billion during the same period in 2023,
  • Improved interest rate visibility produced a much-needed boost in M&A activity, recording $24.6 billion in the third quarter, the highest quarterly volume since the second quarter in 2022
  • Private equity-backed dividend recaps reached $25.3 billion in the third quarter, the highest quarterly volume since the fourth quarter in 2021 
• Refinancing activity declined during the third quarter with $29.8 billion printed, down sharply from $94.8 million  in the second quarter and $38.7 billion during the same period in 2023
  • Extension and Repricing activity, which is not included in new-issue loan volume statistics, declined to $112.3 billion in the third quarter, but remains very active compared to 2023 quarterly activity
• An increase in M&A-related volume helped drive the tightening of spreads across the credit spectrum
• Private credit lenders continue to edge out broadly syndicated lenders by capturing a greater share of deals towards the lower end of the credit spectrum

High yield volume posted another strong quarter after the Fed reduced interest rates

• After a relatively sluggish summer as markets waited for the Federal Reserve interest rate policy decision, third quarter volume of $73.7 billion rose from $41.1 billion in 2023, the 11th straight monthly double-digit volume gain
• The quarterly average yield at issuance decreased to 7.62% during the third quarter, the lowest yield since the second quarter in 2022

The highly anticipated Federal Reserve policy decision resulted in a 50 basis points rate cut in September (and another 25 bps in November)

• At the September 2024 Federal Open Market Committee meeting, the Federal Reserve lowered interest rates by 50 basis points, easing monetary policy for the first time in four years