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Sales of risky European corporate debt surged to their highest ever level in June, as lowly rated companies take advantage of a capital flight out of US markets on fears over the fallout from President Donald Trump’s trade tariffs. Issuance by high-yield, or junk-rated, companies — many of which have previously struggled to access the market — rose to about €23bn in June, according to JPMorgan data. That beats the previous monthly record, set in June 2021, by roughly €5bn. June also saw the greatest number of deals on record at 44, according to PitchBook data.
“The market is drowning in new deals,” said an investor at a European credit hedge fund. Junk-rated companies are responding to a fall in borrowing costs due to greater demand from investors, many of whom are shifting allocations away from US assets due to Trump’s erratic trade policy and concerns about the government’s huge borrowing needs.
Although the US stock market has rebounded strongly in the second quarter, a broad shift away from dollar bond markets has continued, helping drive the greenback to its weakest start to the year in more than half a century. European high-yield bond funds, meanwhile, have posted seven straight weeks of inflows, according to Bank of America data.
Such has been the demand in Europe that companies including bullets manufacturer Czechoslovak Group and butter-substitute maker Flora in the past week have been able to tap bond markets that previously proved difficult to access.
“There’s a massive amount of cash to be invested. It’s the kind of market where people are looking at the art of the possible,” said Ben Thompson, head of Emea leveraged finance capital markets at JPMorgan.
KKR-owned Flora’s deal marked the first by a triple C-rated issuer — one of the lowest bands in the credit spectrum — in almost a year. Investor demand for riskier credits meant it was also able to issue the bonds under Norwegian law, a regime that has traditionally been lighter on disclosures and protections than some other western markets. Flora priced €400mn of bonds on Monday at a yield of 8.625 per cent, roughly four percentage points lower than other outstanding debt with a similar rating, and after the company had to pull another bond deal last year.
Prague-based CSG was able to price new five-year dollar and euro debt at yields of 6.5 per cent and 5.25 per cent respectively last week. That marks a dramatic decline in borrowing costs since its most recent financing, a $775mn bond in November that the Financial Times reported was sold to private credit firms at an interest rate of more than 11 per cent.
Also in the market offering new euro-denominated debt to investors is junk-rated Carnival, the world’s largest cruise operator, which in the past few years was forced to price deals secured on its cruise ships at double-digit interest rates.
High yield spreads — the extra yield over government debt that risky borrowers must pay — have dropped from more than 4 percentage points in April to 3.1 percentage points at the end of June, according to Ice BofA data.
“You can print pretty high-risk stuff at very attractive rates at the moment. The market is running red hot,” said one high-yield bond investor. “There are inflows coming into our market as people are looking to diversify away from the US.”
President Trump’s trade policies have prompted many big investors to rethink their overwhelming preference for the US, given the greater level of uncertainty.
“There’s a huge amount of capital flowing into the asset class and we are starting to see larger managers focus more on Europe,” said Thompson.
Issuers with troubled pasts, or those offering complex and subordinated instruments such as payment-in-kind bonds — where interest can be rolled up into the principal to be repaid on maturity — have also been eagerly welcomed by investors with large amounts of cash to deploy.
Footwear giant Skechers last week priced €1bn of bonds, alongside another $2.2bn of bonds that included a payment-in-kind feature, with the euro portion being increased from an initial offering size of €750mn.
“Managers are desperate to invest,” said one leveraged finance banker.
