With a surge in second quarter refinancings, U.S. leveraged loan issuance had a record quarter, Fitch Ratings says.
The rating agency reported that the leveraged loan market witnessed record-setting deal activity in the second quarter of 2024, with $389.7 billion in new issue volume (all dollar amounts in U.S. dollars).
“Issuance was predominantly driven by repricings and refinancings, accounting for 86% of overall activity,” Fitch said.
“Elevated demand for loans and limited [merger and acquisition/leveraged buyout] issuance created a market imbalance, tightening spreads. Issuers capitalized on this, repricing or refinancing $335.4 billion of loans at lower spreads,” it noted.
Additionally, there was $5.7 billion of broadly syndicated loan debt refinanced into private credit in the quarter, it reported.
At the same time, U.S. high-yield bond issuance was down by 12% on a quarter-over-quarter basis to $76.3 billion, Fitch said, noting that 76% of this activity was driven by refinancings.
The report also noted that leveraged loan default rates rose to 4.1% in the second quarter, up from 3.4% in the previous quarter; while high-yield default rates fell to 2.34%, down from 3.04% in the first quarter.
“Macroeconomic data indicating persistently high, though slowly moderating, inflation lowered expectations for Fed rate cuts in the second half of the year, while higher U.S. Treasury rates posed headwinds,” it said.