European High Yield: forward looking expectations

Blue Bay Asset Management
By December 6, 2022 08:00

European High Yield: forward looking expectations

As the world faces challenges from weakening growth, inflation and policy tightening, the good news for European High Yield investors is that the underlying strength in the asset class has been on an improving trajectory over the last two decades.

In the early 2000s the asset class risk profile was dominated by smaller companies at an earlier stage of their business plans. Particularly the tech boom brought roll-out cable operators with high capex with revenue pay-offs which were several years away.

In 2005-2008, pre–Global Financial Crisis (GFC), high yield markets were the key financing route for junior risk in LBOs; CCC supply increased bringing businesses with more precarious balance sheets into public markets.

The index now has more mature multi-national companies whose balance sheet vulnerabilities are offset with more dependable cashflows. Across multiple sectors there are national champion brands such as Media, Chemicals, Automobiles, Telecommunications and Banking.

For investors this is a noticeable improvement since the GFC, with the proportion of BB rated credits over 70% in Europe compared to 53% at the end of 2008

Blue Bay Asset Management
By December 6, 2022 08:00

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