European junk debt sales spring back to life as sentiment improves

By Chiara Elisei

LONDON (Reuters) – Junk-rated companies in Europe have raised $1.4 billion from bond sales this month as investors return to riskier debt after rising interest rates and Russia’s war in Ukraine froze markets last year.

According to Refinitiv data, those sales so far in January add to almost $2.2 billion worth of sales in December and $760 million in November.

Although sales of sub-investment grade bonds, considered among the riskiest assets globally, remain well below levels over the same period last year, analysts said the pick-up in issuance was positive.

“The high yield market is opening up after last year, when there was a particularly long period of time where it was broadly closed,” said Tatjana Greil Castro, co-head of public markets at Muzinich, a fund manager which focuses on credit.

Some $7 billion of high yield bonds were sold in Europe this time last year, according to Refinitiv. That was just before markets were shut off in February when Russia invaded Ukraine.

Decades-high inflation and aggressive central bank rate hikes also weighed on debt markets with investors shunning risk assets.

More companies are now venturing back into the market, a sign they are willing to test appetite and lock in new funding before interest rates rise further.

Firms are either selling new debt or asking investors to extend the maturity of existing debt, offering in return an increase in the interest they pay.

On Thursday, telecommunications firm Telecom Italia started selling at least $500 million in bonds to refinance short-term debt, while Altice France kicked off a process to extend a total of just over $6 billion and roughly 2 billion euros ($2.2 billion) worth of loans to August 2028.

Last week, Air France SA-KLM sold a debut sustainability-linked bond worth one billion euros, giving the European credit market its first major high-yield deal in months.

The cost of insuring sub-investment grade debt exposure this week fell to its lowest since April, a further sign that sentiment towards risk assets is improving.

While most corporates have addressed junk debt maturing this year, there are a few companies that are under pressure to refinance as soon as possible. Analysts say that such firms could struggle with selling new debt and might require shareholder support to entice investors.

Italian medical device firm LimaCorporate, for instance, on Tuesday started selling a 295-million-euro bond to refinance its current 275 million euros bond maturing in August, according to a memo seen by Reuters. Its private equity owner EQT is putting new capital in the business to strengthen it and get investors more comfortable with the deal.

($1 = 0.9240 euros)

(Reporting by Chiara Elisei; editing by Dhara Ranasinghe and Emeia Sithole-Matarise)