Outlook 2022: Junk issuance to moderate; expected $325 billion to $435 billion in year ahead

By Paul A. Harris

Portland, Ore., Dec. 31 – It took place against the backdrop of a global pandemic that has now raged for nearly two years, with inflation getting its most persuasive grip on the U.S. economy in decades: the high-yield bond market set a record for issuance in 2021.

The year saw $477.22 billion of junk-rated, dollar-denominated issuance, easily topping the previous record, $435.13 billion, set in 2020.

Primary market sources do not expect another record-setting year in 2022.

The year ahead

Examining forecasts from some of the most active underwriters, outlooks for 2022 tend to have the pace of the primary market moderating.

The forecast issuance range runs from a low of $325 billion to a high of $435 billion.

The most robust forecast for issuance during the year ahead comes from Morgan Stanley, which looks for $405 billion to $435 billion of new high-yield paper to be printed in 2022.

Both BofA and JPMorgan look for $425 billion in the year ahead.

For JPMorgan, $425 billion represents its forecast for gross issuance. Of that amount, it forecasts only $185 billion of net new issuance – bonds issued for purposes other than debt refinancing, down 3% from 2021.

Even after record bond refinancing activity in 2021, $397 billion, or 24%, of the developed high-yield universe, is callable now or by the end of 2022, JPMorgan said, adding that the paper in question is trading above or within $2 of call price, with an average coupon of 6½%.

Although numerous market sources told Prospect News that high-yield borrowers took advantage of ultra-low rates during 2021 in order to address a looming “wall of maturities” comprised of junk bond issues coming due in the near- or intermediate terms, there is still plenty of wood to chop, JPMorgan says, noting that around $400 billion matures between 2023 and 2025.

Barclays forecasts $400 billion to $420 billion of issuance in 2022.

Both Citigroup and Deutsche Bank look for $400 billion.

The lowest forecast amount of issuance for 2022, $325 billion, comes from Goldman Sachs. By its count, that amount of issuance represents a 25% decline from 2021.

2021 milestones

The biggest week of 2021 in the high-yield primary market began on April 11. By the following Friday's close, $18.21 billion cleared the market in 24 tranches.

The biggest day was Feb. 10, which saw $8 billion price in six tranches, including megadeals from two of the market's most familiar names: Carnival Corp. priced $3.5 billion of 5¾% senior notes due March 2027, and Centene Corp. priced $2.2 billion of 2½% senior notes due March 2031.

The year's single biggest tranche came on Sept. 30, to support the Medline LBO.

The $4.5 billion of Mozart Debt Merger Sub Inc. (Medline Borrower, LP) 3 7/8% senior secured notes due April 2029 priced at par in a deal that also included $2.5 billion of 5¼% senior unsecured notes due October 2029.

The combined Medline tranches, totaling $7 billion, represent the biggest amount of 2021 issuance from an issuer in a single pass at the market, and therefore it was the year's biggest deal.

© 2015 Prospect News.
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