HY monthly: Record-setting issuance continues in May as borrowers lock in funds

The record run for U.S. high-yield issuance continued with $47 billion of new prints in May, the highest-ever total for the month, as companies continue to lock in low borrowing costs, even as retail fund outflows mount. Issuance was up 7% from the then-record $43.8 billion in May 2020, and it follows April's $49.2 billion total, also a record high for that calendar month.

Since May 2020, issuance totals have represented either the peak or second-highest amounts for each of the respective calendar-month periods, including new record amounts for every month since December 2020. May's total now ranks ninth highest for any monthly total on record, according to LCD.

Through May 31, issuers have printed a total of $245.4 billion in high-yield paper in 2021, establishing the most on record through the first five months of a year.

Leveraged loan volume, by contrast, moderated again in May. The month featured $34.6 billion in issuance, down from $52.7 billion in April, and the pandemic-era high of $73.4 billion in March.

The pace of secured bond issuance also downshifted in May from a high trailing pace. Secured bond volume was $14.5 billion for the month, dipping from the all-time monthly high of $26.1 billion in April. Month-to-month, the combined sum of unsecured and subordinated issuance rose to $32.4 billion, from $23.0 billion in April.

Bond prices trended lower for the greater portion of the month before working to retrace losses at the close. The May 27 assessment of LCD's 15-bond sample of liquid high-yield issues registered a 16 basis points gain week-to-week, to 106.21% of par, with a 3.92% yield-to-worst, at T+308, moving in tandem with a firm progression for underlying Treasurys. April concluded with a 107.22 average bid price, and 3.74% yield, at T+287.

Performance was similar for the S&P U.S. Issued High Yield Corporate Bond Index, which logged a 105.08% average bid price during May's final session, with a 4.03% yield-to-worst, at T+313. The average bid price for the index at April's close was 105.30. Through May 28, the year-to-date return for high-yield bonds was 2.02%, a 47-basis-point gain from the previous month, per the index.

After tacking on an additional 36 bps in April, new-issue yields tightened in May with borrowers inking an average 5.28% yield, from 5.52% one month prior.

The whittled-down costs were most pronounced for double-B rated bonds, which carried an average yield of 3.78% at pricing in May, the lowest on record for a single month and down from April's 4.51%. Conversely, single-B bonds were finalized with an average 5.97% yield, up 68 bps month over month.

That BB yield average was across a sizable sample. Such prints accounted for 33% of May's volume, from 29% in April. Single-B supply declined to 31% of the month's total, from 35% in April, while the share of triple-C paper rose to 14%, from 9%.

While refinancing efforts remain the primary catalyst of bond supply, deals backing M&A and leveraged buyouts continued at April's brisk pace. About 28% of May's volume was via M&A/LBO trades, nearly unchanged from the previous month. Included in the May total were deals for The Goodyear Tire & Rubber Company, Club Car LLC and EQT Corp.

The share for refi-driven prints declined for the third consecutive month, at the lowest percentage since October 2020. Some 59% of May's issuance was completed to tackle existing debt maturities, trimmed from 60% in April, and 75% in March, LCD data shows. Bausch Health Cos. Inc., Tenet Healthcare Corp. and T-Mobile USA Inc. added to the tally.

Recapitalization bond issuance (5%) and liquidity-driven paper (7%) round out the May supply story. Of note, recapitalization high-yield issuance in 2021 — particularly prints backing distributions to shareholders — is tracking at a 10-year peak, propelled by first-time borrowers.

The steady flows from the primary market come despite persistent outflows from high-yield funds. Per weekly reporters to Lipper, through June 2 high-yield funds have clocked $13.9 billion of redemptions in 2021, after they attracted $38.3 billion of inflows in 2020. The final figure for May was a $1.37 billion outflow, largely attributed to withdrawals from mutual funds.