U.S. and EU high-yield bond and loan markets: Trends and pain points

U.S. and EU high-yield bond and leveraged loan (high-yield debt) markets – essential sources of funding for issuers looking to raise money – are in a state of constant evolution. Deals these days are moving faster. Timelines are getting shorter. And activity has rebounded after an extended period of sluggish volatility.

In this fast-paced world, you need a trustee and agency partner that can act quickly with cross-border collaboration. When the clock is ticking, you want a team that can mobilize their resources to meet tight deadlines and help you avoid needless delays and complications.

In this article, we’ll explore current market trends, as well as six common issuance obstacles and ways to avoid them.

U.S. and EU high-yield bond and leveraged loan market trends

The outlook for high-yield bond and high-yield debt markets is always difficult to predict due to ever-changing macroeconomic events. But lately, these markets have been showing considerable strength.

“In Europe, the markets were very busy last year, and that activity has continued into this year,” says Rosie Brooke-Taylor, vice president of business development at U.S. Bank Global Corporate Trust – Europe. “While issuance is lower this year than last due to market conditions, it has remained fairly steady. We’ve also been seeing a strong ‘Reverse Yankee’ trend right now with U.S. companies issuing euro notes into Euroclear/Clearstream, as well as several large, syndicated loan closings as part of wider financings.”

Other trends have been emerging as well.

“From a service provider standpoint, we’re seeing interesting developments in collaborative, cross-border client support,” says Shawn Goffinet, vice president of business development at U.S. Bank Global Corporate Trust – U.S. “At U.S. Bank, for example, we’ve been introducing our UK team members to our U.S. customers and counterparties – and vice versa – to enable a truly seamless cross-border experience. The nuances of the U.S. and European markets aren’t always fully appreciated or understood, but the recent trend in currencies showcases the strength of our geographically integrated knowledge, experience and product offering.”

Six common bond and loan issuance pain points

No matter how the market fluctuates in the future, bond and loan issuers – and their attorneys – will still invariably face a variety of obstacles on the path to getting a deal closed. Here are six of the most notable pain points you might encounter and steps you can take to bypass them.

1. Jurisdictional limitations

When it comes to issuing bonds, the U.S. and the EU have separate and distinct clearing systems. The U.S. market uses the Depository Trust Clearing Corporation (DTCC), and the EU market uses Euroclear and Clearstream. This can create difficulties if you want to issue a tranche of U.S. dollar and euro notes. Using a trustee with multi-currency capabilities and a presence in both jurisdictions, however, should make this a non-issue.

“No two transactions are alike, so having global partners that can meet U.S and European requirements is key to staying nimble and avoiding headaches,” says Rosie. “The best trustees prioritize proactiveness, responsiveness and flexibility to ensure you’re able to get what you need when and how you need it.”

2. Lack of European/U.S. crossover

When borrowers or issuers – or their attorneys or intermediaries – have to engage separate providers to handle their U.S. and European tranches, it creates layers of complication and inefficiency. Instead, it’s much more streamlined to choose a provider with cross-border capabilities and the expertise to coordinate deals and relationships across integrated internal teams in a single organization.

"At U.S. Bank, we work closely together to ensure coordination for our deals and relationships,” says Rosie. “We have dedicated relationship managers who serve as the key point of contact for the client and facilitate actions across teams. This model ensures prompt documentation review and KYC processing, as well as a high level of proactivity and responsiveness – both at deal close and throughout the lifetime of the transaction.”

Working with a multiple-role, international service provider ensures all angles are covered when bringing a multicurrency or multi-tranche deal to market.

“Our teams in Europe and the U.S. work together to close deals, and they apply decades of experience with their respective local markets to a common goal,” says Shawn. “We’re able to internally resource and leverage that expansive expertise for new or bespoke deal structures and provide our clients and their counterparties unparalleled confidence in execution.”

3. Know your customer (KYC) and onboarding delays

Today’s KYC rules often create labor-intensive tasks within an onboarding checklist. A tenured team understands exactly what documentation they need for compliance. Obtaining everything upfront – at the start of the process – reduces inefficient back-and-forth requests that add work and that place additional demands on your time.

Sophisticated onboarding systems and experienced teams can help create a seamless integration, so you don’t have to worry about delays or missing deadlines. A market-leading provider will have a robust framework to check, monitor and assess risk during the onboarding process in an efficient fashion. They’re able to examine potential issues and develop flexible solutions that adapt as needs evolve while remaining compliant with policies and regulations. This can produce faster turnarounds and smoother interaction overall.

4. Miscommunication between parties

When too many parties are involved, coordinating efforts becomes difficult. Gaps in communication can occur, and responsibilities can be overlooked. To streamline the process, look for a partner who can provide a full range of services and act in multiple roles. A multi-functional trustee and agency provider can deliver operational efficiencies, opportunities for cost reduction and a more integrated onboarding experience.

“When multiple service providers are engaged to provide a narrow scope of services, gaps in coverage or tasks can go unnoticed because the trustee or agent is appointed for a limited purpose,” says Shawn. “Borrowers and issuers take great comfort in partnering with a single corporate trust provider in U.S. Bank to meet all of their needs – especially as the deal terms and structure inevitably evolve over the course of negotiation. We differentiate ourselves by identifying needs and opportunities and providing all necessary corporate trust services in a comprehensive manner.”

To ease the burden of managing several parties in your transaction, consider a single partner that can fill multiples roles, including but not limited to:

• Indenture trustee
• Collateral agent
• Security trustee
• Registrar, transfer agent and paying agent
• Calculation agent
• Common depository
• Settlement agent
• Facility agent
• Conversion/exchange agent
• Escrow services provider
  

5. Inefficient, non-commercial document review

Delays and complications arise if your service provider doesn’t understand their roles. They can lose sight of a customer's goals or get bogged down in trivial matters. You want a partner that smoothly and efficiently moves the process forward without creating unnecessary friction.

Client managers should have the expertise and awareness to know when – and just as importantly, when not – to make changes. You want revisions to be prompt, pertinent and helpful to avoid slowing the whole process down.

“On one hand, you don’t want document review to be too fast and careless,” says Shawn. “On the other hand, you don’t want it to be too slow, tedious and overdone. You want to find the perfect ‘Goldilocks’ balance of thorough and efficient – a team that clearly understands the intent of what you’re trying to accomplish and works to that end.”

6. Complex financing arrangements

Occasionally, deals require intricate or multifaceted financing arrangements, which can add layers of risk and complexity. Whenever you’re navigating credit and loan options, you need a facilitator with experience and a thorough understanding of all the steps involved.

“In addition to our trustee and agency services at U.S. Bank, we can provide facility agent and security and collateral agent services for various types and sizes of facilities across our U.S. and European locations,” says Rosie. “We serve as the liaison between the borrower and the lender – and our experience, track record and flexibility make us especially well-suited for these types of complex transactions.”

Depending on your needs, our team at U.S. Bank can provide professional and independent facility and security agency services for credit facilities. As an active member of the Loan Market Association (LMA), and a leading CLO and credit fund loan administrator, we have experience with a diverse range of loan and bond financing structures such as syndicated issues, club deals, successor agency, unitranche and bridge financing.

At U.S. Bank, we have the experience, reach and technology to navigate the mechanics of complex deals with transparency, consistency and unwavering quality. As new opportunities emerge in the bond and loan landscape, we can help you understand some of the new legal and structural hurdles in this fast-paced market.

For more information about our European trustee solutions, visit our website or contact Rosie Brooke-Taylor at rosie.brooketaylor@usbank.com.

For more information about our U.S. trustee solutions, visit our website or contact Shawn Goffinet at shawn.goffinet@usbank.com.