Expectations of a strong recovery for 2021 have given the High Yield debt market a big boost. With interest rates and spreads at minimum, many companies of speculative-grade (BB or lower), and compromised by the ravages of the pandemic, have taken the opportunity to issue debt in the face of a very lax market in their financing conditions.
Issues of High Yield debt denominated in dollars in March totaled 76 billion euros, 70% more than the average of the previous 5 years. The important thing here is to get to the bottom of the matter, that is. analyze what this debt is being used for.
The graph shows how a large part of the new issues is being used to refinance debt, capitalizing a rolling at lower rates.
Given the fact that structural changes which accelerated the pandemic put in suspense the viability of many companies, we believe that it does not make much sense to lend at a lower rate if the intrinsic risk of the companies not only hasn't decreased but also face bigger challenges ahead.