DEBT WATCH EUROPE 2020 ANNUAL REVIEW - PWC
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Review of 2020 and outlook for 2021 €859bn Overview In the wake of a coronavirus pandemic Conversely, reduced yields led to Total raised in 2020 (COVID-19) during 2020, European bond unfavourable terms for investors. Average markets remained very active. 1,207 deals yield-to-maturity on issuances for BB rated across Europe and c.€859bn raised during 2020 surpassed bonds has decreased from 4.02% in 2019 2019 activity in terms of volume (c.€814bn to 3.50% in 2020, and for B rated bonds raised by comparison) even though overall from 6.61% in 2019 to 5.77% in 2020. 1,207 numbers of deals were lower than 2019’s 1,305. The first two quarters of 2020 were far more active than the latter two, though Financial services dominated both the high yield and investment grade markets Total deals in 2020 activity continued throughout. Market throughout 2020; perhaps unsurprisingly across Europe conditions drove the strong start in Q1 2020 consumer goods and services were the and then we saw a further response in Q2 second most active sector with 21% and 2020 to COVID-19 as companies searched 15% of the markets, respectively. As one of for liquidity to shore up their balance the most affected sectors by COVID-19, the €699bn sheets. This was especially evident in the investment grade markets, which showed consumer sector saw a great deal of activity to weather the storm as national lockdowns and restrictions resulted in many businesses Raised in Investment Grade heightened levels during Q2 2020 as issuers flocked to the markets. Q2 2020 proved the needing to bolster liquidity, refinance any deals in 2020 across Europe national state schemes that had been slowest quarter for high yield with 42 deals amounting to c.€35bn, due to the high yield offered or repay drawings on revolving market’s dormant activity during March and credit facilities. The market saw deals from €160bn April 2020. Nonetheless, in the shadow of unexpected places with Carnival cruises COVID-19, 2020 proved to be one of the issuing US$4bn senior secured notes in strongest high yield bond years on record April 2020, US$900m senior secured notes Raised in High Yield deals in terms of volumes. c.€160bn were issued, in August 2020 and c.US$2.04bn (US dollar in 2020 across Europe behind only 2017 which saw c.€179bn equivalent) senior notes in November in issued without the markets effectively 2020. Even while much slowed down in shutting down. Q4 2020 high yield activity the wake of global lockdowns, the bond saw an uptick as investor sentiment markets remained open and adapted to the improved with news of effective vaccines. new trading environment. Since March 2020 Keynesian central The 2020 European high yield bond banks have continuously offered stimulus market was dominated by BB credit rated packages to the markets, providing instruments, accounting for over 60% unprecedented support to economies of deals. This was a consequence of the with issuers taking advantage. The latest ‘fallen angels’ that came to light during instalments being the European Central 2020 coupled with investors’ willingness to Bank (ECB) adding c.€500bn to its bond buy into riskier bonds. Examples of ‘fallen buying program in December 2020, angels’ were seen in Q4 2020 when followed by the U.S. Federal Reserve (the Marks & Spencer and Renault issued high Fed) adding c.US$900bn as an additional yield bonds. stimulus package. 2 | Debt Watch Europe – 2020 Annual Review | PwC
Review of 2020 and outlook for 2021 (continued...) Green/ESG bonds New issuers of green bonds are able to This leaves bond investors with much expand their investor bases and attract to consider going into 2021 as they are The European green bond market is growing a wider audience, which is an additional squeezed out by central banks and continue swiftly as companies search for favourable incentive along with the credentials. 2020 to search for improved yield. Consequently, terms and want to be seen as acting in a saw issuers from sectors not previously investors may look to other instruments socially responsible manner. Predictions for seen before such as consumer goods and and markets to enhance returns on their 2021 are that as much as US$500bn could industrials, which will in time help grow portfolios. Some of the initial excitement be raised worldwide in the sector in 2021. the market as investors look to diversify. around the vaccine development has The appetite is certainly there, as investors Burberry pioneered green bonds in the become muted as the reality of the also have ever-increasing environmental, fashion retail sector with an issuance mammoth task of its rollout dawns. So the social and governance (ESG) mandates amounting to £300m paving the way for early optimism of investors at the end of driving demand. 2020 saw 146 green bond many others. 2020 was checked in the first quarter of deals amounting to c.€80bn in contrast to 2021. Generally positivity remains and, for 127 deals amounting to c.€63bn in 2019. Outlook for 2021 the right issuer with the right story, there will Against this, concerns remain. With no certainly be an appetite for new deals. We set ESG framework that all issuers need Looking ahead to 2021 and the changes have already seen oversubscribed bonds to follow, accusations of ‘greenwashing’ as a result of the Democrats winning the issued in the first week of January with Wizz and differentiation in practice have made United States presidential election and Air receiving €2bn of orders for its €500m benchmarking difficult. That said, new gaining control of the Senate coupled with 1.35% issue. standards and frameworks are being continued lockdown scenarios, there are developed to address investor concerns and likely to be further stimulus packages from The market for issuers is expected to remain the European Union (EU) has developed the national Governments and central banks attractive during 2021. In spite of continued EU taxonomy for sustainable activities. to support and balance markets into 2021 restrictions and national lockdowns due to until the COVID-19 vaccine has been fully COVID-19, activity is expected to remain rolled out and stability achieved. Yields on high. Credit default ratings could increase Government bonds throughout Europe are in 2021 as the COVID-19 situation evolves very low and are expected to remain at and as the full effects of the pandemic are these levels for the year ahead. The rate at reported in companies’ annual financial which the ECB has purchased Government statements. As 2021 progresses, the focus bonds during 2020 is unprecedented, may switch from refinancing to M&A and resulting in low yields. LBO with yields likely to be dependent on the sector. PwC | Debt Watch Europe – 2020 Annual Review | 3
Corporate Debt Activity Corporate debt activity by quarter 350 400 365 300 350 302 306 265 271 300 250 Number of deals 250 Value (€bn) 200 200 150 150 100 100 132 199 113 114 50 273 50 45 43 35 38 44 0 0 Q4 2019 Q1 2020 Q2 2020 Q3 2020 Q4 2020 Value High Yield (HY) Value Investment Grade (IG) Number of deals Corporate debt activity by year 1,000 1,319 1,305 1,400 1,207 900 1,057 1,200 800 1,005 700 1,000 Number of deals 600 Value (€bn) 800 500 600 400 300 400 602 699 200 662 578 540 200 100 111 179 111 152 160 0 0 2016 2017 2018 2019 2020 Value High Yield (HY) Value Investment Grade (IG) Number of deals 4 | Debt Watch Europe – 2020 Annual Review | PwC
Green/ESG Bonds Green/ESG bonds activity by quarter* 30 60 51 25 50 32 37 20 35 40 Number of deals 26 Value (€bn) 15 30 10 20 5 10 17 18 19 26 17 0 0 Q4 2019 Q1 2020 Q2 2020 Q3 2020 Q4 2020 Value Number of deals Green/ESG bonds activity by year* 90 146 160 80 127 140 70 120 60 Number of deals 100 Value (€bn) 50 80 40 59 55 60 30 32 40 20 10 20 16 32 33 63 80 0 0 2016 2017 2018 2019 2020 Value Number of deals * Green/ESG bonds includes Social, Sustainable and Green bonds PwC | Debt Watch Europe – 2020 Annual Review | 5
High Yield – Europe (Rated BB+ (inclusive) and below) HY activity by quarter HY by sector 2020 50 93 100 77 77 Basic Materials 45 90 6% 4% 40 70 80 Consumer Goods 42 10% Number of deals 35 70 14% Consumer Services Value (€bn) 30 60 Financials 25 50 2% 11% Health Care 20 40 3% Industrials 15 30 Oil & Gas 10 20 13% Technology 5 45 43 35 38 44 10 0 0 Telecommunications Q4 2019 Q1 2020 Q2 2020 Q3 2020 Q4 2020 34% Utilities 3% Value HY Number of deals Top ten HY issues 2020 Pricing Ten largest HY issues Value Sector Listing Nationality of Credit YTM (%) date 2020 (€m) operations rating (S&P) Jun-20 ThyssenKrupp Elevator AG 4,037 Industrials TISE-The International Germany B/CCC 5.97 Stock Exchange Jun-20 Fiat Chrysler Automobiles NV 3,500 Consumer Goods Irish Stock Exchange- Italy BB+ 3.92 All Market Jan-20 Altice Financing SA 2,774 Financials Luxembourg Stock France B 3.42 Exchange Sep-20 VMED O2 UK Financing I plc 2,759 Telecommunications TISE-The International United Kingdom BB- 3.83 Stock Exchange Oct-20 Rolls-Royce plc 2,199 Industrials London Stock Exchange United Kingdom BB- 5.38 Oct-20 Gaz Finance plc 2,184 Oil & Gas Irish Stock Exchange- Russian BB All Market Federation Jan-20 Altice France SA 2,102 Telecommunications TISE-The International France B 4.08 Stock Exchange Sep-20 Electricite de France SA 2,081 Utilities Paris France BB- 3.25 – EDF Oct-20 Veolia Environnement 2,000 Utilities Paris France BB+ 2.50 Aug-20 Vodafone Group plc 2,000 Telecommunications London Stock Exchange United Kingdom BB+ 2.82 HY by issuer operations nationality 2020 Average yield-to-maturity by issue rating (%) United Kingdom S&P rating Q4 2020 2020 2019 Italy 17% 20% Germany BB 3.50 3.70 4.02 France B 6.26 5.77 6.61 2% Netherlands CCC - 5.91 8.95 2% 14% 3% Spain CC 9.33 9.33 - 3% Brazil 4% Russian Federation 5% 14% Ireland 5% Sweden 11% United States Other 6 | Debt Watch Europe – 2020 Annual Review | PwC
Investment Grade – Europe (Rated BBB- (inclusive) and above) IG activity by quarter IG by sector 2020 300 323 350 3% 2% Basic Materials 250 300 3% 7% 229 Consumer Goods 12% Number of deals 209 250 3% Consumer Services 200 195 194 Value (€bn) 200 9% Financials 150 Health Care 150 100 Industrials 100 11% Oil & Gas 50 50 Technology 132 199 273 113 114 4% Telecommunications 0 0 Q4 2019 Q1 2020 Q2 2020 Q3 2020 Q4 2020 Utilities 46% Value IG Number of deals Top ten IG issues 2020 Pricing Ten largest IG issues Value Sector Listing Nationality of Credit YTM (%) date 2020 (€m) operations rating (S&P) Feb-20 LVMH 9,299 Consumer Luxembourg Stock Exchange France A+ 0.50 Goods Nov-20 Saudi Aramco 6,702 Oil & Gas London Stock Exchange Saudi Arabia NR 2.42 Jun-20 BP Capital Markets plc 6,141 Oil & Gas London Stock Exchange United Kingdom BBB Jul-20 Bayer AG 5,980 Health Care Luxembourg Stock Exchange Germany BBB 0.97 Feb-20 Siemens 5,004 Industrials Luxembourg Stock Exchange Germany A+ 0.34 Financieringsmaatschappij NV Jan-20 Petroleos Mexicanos – 4,508 Oil & Gas Luxembourg Stock Exchange Mexico BBB+ 6.45 PEMEX Mar-20 Anheuser-Busch InBev SA/NV 4,489 Consumer London Stock Exchange Belgium A- 2.92 Goods May-20 Siemens 3,997 Industrials Luxembourg Stock Exchange Germany A+ 0.47 Financieringsmaatschappij NV Jun-20 Upjohn Finance BV 3,600 Health Care Irish Stock Exchange- United States BBB- 1.28 All Market Jun-20 Airbus SE 3,482 Industrials Luxembourg Stock Exchange France A 1.84 IG by issuer operations nationality 2020 Average yield-to-maturity by issue rating (%) France S&P rating Q4 2020 2020 2019 Germany 17% 20% United Kingdom AAA 0.02 0.64 1.94 Netherlands Spain AA 0.29 0.84 1.02 3% 3% United States A 0.83 1.21 1.34 3% Sweden BBB 1.46 1.86 2.01 3% 14% Italy Canada 4% Switzerland 4% Finland 4% 13% Japan 5% 7% Other PwC | Debt Watch Europe – 2020 Annual Review | 7
UK Focus High Yield (rated BB+ (inclusive) Investment Grade (rated BBB- (inclusive) and below) and above) UK HY activity by quarter UK IG activity by quarter 16 25 60 55 60 18 20 14 18 43 16 12 20 50 50 Number of deals Number of deals 12 40 40 Value (€bn) Value (€bn) 10 15 29 29 27 8 30 30 6 10 20 20 4 5 2 10 10 9 12 12 14 11 17 39 55 13 23 0 0 0 0 Q4 2019 Q1 2020 Q2 2020 Q3 2020 Q4 2020 Q4 2019 Q1 2020 Q2 2020 Q3 2020 Q4 2020 Value HY Number of deals Value IG Number of deals UK HY by sector 2020 UK IG by sector 2020 2% 3% Basic Materials Basic Materials 6% Consumer Goods Consumer Goods 7% 5% Consumer Services Consumer Services 24% 21% Financials Financials 20% Health Care Health Care 18% Industrials Industrials 3% 3% Technology Oil & Gas Telecommunications 3% Utilities Utilities 2% 18% 18% 6% 41% Top five UK HY issues 2020 Top five UK IG issues 2020 Pricing Top five Value Listing Credit YTM Pricing Top five Value Listing Credit YTM date HY issues (€m) rating (%) date IG issues (€m) rating (%) (S&P) (S&P) Jun-20 ThyssenKrupp 4,037 TISE-The B/CCC 5.97 Nov-20 Saudi 6,702 London Stock NR 2.42 Elevator AG International Stock Aramco Exchange Exchange Sep-20 VMED O2 UK 2,759 TISE-The BB- 3.83 Jun-20 BP Capital 6,141 London Stock BBB Financing I plc International Markets Exchange Stock Exchange plc Oct-20 Rolls-Royce 2,199 London Stock BB- 5.38 Mar-20 Anheuser- 4,489 London Stock A- 2.92 plc Exchange Busch InBev Exchange SA/NV Jan-20 Altice France 2,102 TISE-The B 4.08 Apr-20 BP Capital 3,250 London Stock A- 2.41 SA International Markets Exchange Stock Exchange plc Aug-20 Vodafone 2,000 London Stock BB+ 2.82 Apr-20 Wells Fargo 3,000 London Stock A- 1.54 Group plc Exchange & Co Exchange 8 | Debt Watch Europe – 2020 Annual Review | PwC
About Debt Watch Europe Debt Watch Europe surveys all main and exchange regulated market bond deal issuance across Europe’s debt listing venues (excluding Russia and Switzerland). Previously the data was based on the deal nationality being within certain European countries. The survey was conducted between 1 January and 31 December 2020. All market data is sourced from Dealogic and has not been independently verified by PricewaterhouseCoopers LLP. Methodology The classification of investment grade (IG) and high yield bond (HY) bonds are based solely on the ratings given by S&P – with BBB- and above (inclusive) as IG and BB+ and below (inclusive) as HY. Yield to maturity is calculated as an average for issues with numerous tranches as of the pricing date. For any issue with different ratings applied to different tranches, the multiple credit ratings for such issuances are displayed. Sources: Dealogic, LCD, Bloomberg and PwC analysis. PwC | Debt Watch Europe – 2020 Annual Review | 9
Contacts Sarah Hitchen Partner, Capital Markets M: +44 (0)7734 958782 E: sarah.l.hitchen@pwc.com David Godbee Partner, Debt & Capital Advisory M: +44 (0)7740 242013 E: david.k.godbee@pwc.com James Millar Senior Manager, Capital Markets M: +44 (0)7725 706184 E: millar.james@pwc.com Dominic Griffiths Senior Manager, Capital Markets M: +44 (0)7483 407481 E: dominic.x.griffiths@pwc.com 10 | Debt Watch Europe – 2020 Annual Review | PwC
PwC | Debt Watch Europe – 2020 Annual Review | 11
This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors. © 2021 PricewaterhouseCoopers LLP. All rights reserved. PwC refers to the UK member firm, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details. 2021-01-08_RITM4415881
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