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Nordic high-yield issuance to remain muted into 2018 as low oil price bites hard

Nordic high-yield issuance to remain muted into 2018 as low oil price bites hard

by Sandra Veseli, Managing Director, Head of EMEA Leveraged  - Moody's

Nordic high-yield rated and unrated bond issuance volumes are likely to fall well short of 2014 peaks over the next 12-18 months, because low oil prices and supply-and-demand imbalances continue to make business tough for the region’s oil & gas and shipping sectors. As a result, issuance remains muted from the two sectors that have in the past been the main powerhouse behind issuance volume growth in the Nordic high-yield market, particularly in Norway.

While some respite is likely to come in the form of Swedish issuance, which will be stronger than Norway's into 2018 on the back of its more diverse high-yield market with issuers from a wider range of sectors, it will not be enough to compensate for the substantial fall in volumes from its Nordic neighbour over the past two years.

We view Sweden as having the strongest growth prospects in the Nordic region by virtue of its diverse economy, innovative and high-value services sector, robust competitiveness and large and geographically diverse export markets. One slight weakness in terms of Sweden’s high-yield market is its concentration on the real estate sector.

Looking ahead into 2018, we expect the Nordic unrated high-yield bond market to retain its position as the largest in Europe. The main reason being that a very high proportion of unrated Nordic issuance is for small amounts, of less than EUR100 million. We expect this trend to continue over the next 12-18 months.

Private equity firms are likely to continue to access Nordic high-yield markets on an opportunistic basis as the high-yield market has become a more stable source of capital in the Nordics. From 2011-15, issuance from sponsor-driven transactions totalled a robust EUR7 billion. However, no new high yield bonds were issued during the first nine months of 2016.

We will continue to see Nordic high-yield bond covenants being stronger than elsewhere in Europe into 2018. Nearly 80% of regional issuers use a Nordic-style covenant package, which includes maintenance debt to satisfy investor demand.

This content is provided by Euromoney Seminars for informational purposes only, and it reflects the market and industry conditions and presenter’s opinions and affiliations available at the time of the presentation.