Quick take: Secured bond volume soars amid sinking yields, loan market rebound

U.S. high-yield secured bond issuance is booming, which — alongside a rapid revival of the variable-rate loan markets — is providing leveraged issuers with considerable flexibility in achieving their funding targets. Secured high-yield bond issuance has already set a historical monthly record at $24.1 billion through April 27, abetted by fresh lows for secured-bond yields, according to LCD.

"Issuers are concurrently offering loans and bonds and then sizing them according to demand and best execution to ultimately blend down cost of capital or to manage their fixed/floating dynamics," says a sell-side source. "It’s all about the cost of capital arbitrage right now."

Total secured debt volume was $74.7 billion for April through the 27th, with institutional leveraged loans accounting for $50.7 billion of the sum. The loan issuance is down from a pandemic-era monthly high in March ($74 billion), and while it is still the third-highest monthly total of the COVID-19 period, the decline at least in part reflects the strong pricing execution available to borrowers via secured bonds.

Overall, when including unsecured bonds in the mix, borrowing costs are slightly higher in April, versus March. But on a stand-alone basis, the 5.74% yield for new secured-bond offerings in April marks a new crisis-era low, down 31 bps month over month. Conversely, new-issue costs for unsecured prints widened 68 bps, to 5.60%.

Indeed, issuers appear to be taking advantage of the wide-open bond and loan markets, with many launching concurrent deals in both segments, and at times adjusting the funding mix to lock in the most favorable terms. United Airlines in March opted to downsize its secured bond pitch in favor of an upsized loan, allured by the shorter call period for the floating-rate debt versus the bonds being non-callable through maturity. And at the expense of planned loan-only financing, CoreLogic this month chose to diversify the funding mix for its buyout with the inclusion of a secured bond tranche.

Single-B rated borrowers have led the charge for secured bond placements. Nearly 41% of April's secured volume has come from companies in the ratings segment, with BB/B issuers holding a roughly 26% share of the volume, and 23% accounted for by BB names.

After wrapping a blockbuster year for U.S. high-yield prints where volume touched $435 billion, 2021 has kept pace with an impressive $192.3 billion in issuance through April 27, outpacing 2020 by 82%. Ahead of the close, April's tally has already hit an all-time high for the month, at $43.06 billion in completed supply, extending a streak of issuance totals in the pandemic era reflecting either the peak or second-highest amounts for each of the calendar-month periods since May 2020.