Alternative Credit Letter

The European High Yield bond market shows significant cyclical evolution. Issuances reached their historical peak in 2021 with €149.9 billion, driven by exceptional post-COVID liquidity conditions. However, the market experienced a dramatic contraction in 2022 (€31.8 billion), followed by gradual recovery in 2024 (€120.2 billion). Meanwhile, a notable transformation in maturity structure is observed: concentration

The European High Yield market is experiencing a notable surge in issuances aimed at financing dividends, known as dividend recaps. In 2025, these transactions represent nearly 8% of total issued volume, compared to the 0-2% range observed between 2019 and 2023 and 6% in 2024. June recorded a record volume of €3.7 billion, equivalent to

AT1 bonds are trading with historically high yields and coupons, giving some investors the impression of both attractive carry and certainty of calls in the future. However, an important metric that we believe has often been overlooked during this period is the reset spread. The reset spread is the additional yield added to a market

Small and medium-sized bond issues in Europe offer higher spreads than their U.S. equivalents. This premium reflects the unique structure of the European market, where investors are often rewarded for navigating less liquid and more complex securities. Europe’s bond market is fragmented due to different tax systems, legal frameworks and bankruptcy regimes across countries. This

As of the end of May, the European High Yield index delivered a return of over 1.3%, fully erasing the losses from March and reaching new highs for the year at 2.30%. Despite this strong performance, the European High Yield market continues to offer an attractive medium and long-term opportunity, considering that default rates are

High Yield bonds delivered a modest total return of 0.28% in April. This was supported by a 30 basis points rally in Bunds and a solid 0.4% carry, which helped counterbalance a 36 basis points widening in spreads and a larger excess return loss of 0.8%. The performance reflects a partial rebound from the early-April

In March 2025, there were no defaults in the European high yield market. However, several companies have moved forward with recapitalization plans and will be incorporated into default rate metrics in the coming months. If the trade war continues to escalate and primary markets remain closed for a prolonged period, it could present challenges for

Despite relatively low overall default rates in the high-yield and syndicated loan market in 2024, a record-breaking 35% of defaults and distressed exchanges involved companies with prior defaults. This surge in repeat defaults stems from several factors. Higher interest rates have significantly increased borrowing costs, especially for financially precarious firms. Many companies that underwent distressed

Default and LME (liability management exercises) activity began 2025 on a quieter note, recording the lowest default and distressed exchange volume for a calendar month since December 2022. However, December saw elevated activity, and three- and six-month rolling totals remain high. We expect a slight moderation in high-yield bond and leveraged loan defaults in 2025,

The rise of Liability Management Exercises (LMEs) among high-yield issuers has primarily been driven by covenant-lite structures. These conditions allow managers reallocate assets, modify terms, and exchange instruments, also leading to a large increase of “distressed exchanges” (where troubled issuers offer bondholders reduced-value securities for existing bonds). This helps ease financial distress and avoiding an