Credit Market Overview

High Yield, Leveraged Loans, and Distressed Markets

High Yield Bonds: 

After returning a dismal return (-26.83%) in 2008, high yield bonds have rebounded significantly in 2009 with positive returns of 52.25% through October of 2009.  Liquidity has been coming back into the markets with year-to-date high yield new issuance totaling $139.7B.  This compares favorably to the $52.9B of new issuance for all of 2008.  Further confirming demand, there have been $27.6B of inflows this year in high yield, the highest level since 2003.

Leveraged Loans:

After a difficult 2008 where leveraged loans returned -34.09%, the loan market also came back very strongly with returns through October of 2009 of 46.96%.  The new issue calendar has yet to materially open for new bank debt syndications. 

Defaults and the Distressed Market:

Though credit markets have had favorable returns thus far in 2009, default rates for high yield bonds and leveraged loans increased at an accelerated pace in the first half of the year.  Default activity has slowed in the second half of 2009, though still remains at a robust level of 8.91% for high yield bonds and 11.84% for leveragred loans.  Though the return of liquidity for refinancing, combined with improving economic data, will more than likely bring concensus default rates down, we still anticipate a strong supply of distressed situations over the next 12 months.