Debt Watch Europe 2022 Annual Review

Annual corporate debt activity

Corporate debt activity by year

2022 was a challenging year for the European corporate bond markets as the year closed 25% lower in terms of both volume and number of corporate debt issuances compared to 2021. The economic uncertainty due to a number of factors including the war in Ukraine, the tightening of monetary policy to try to curb rampant inflation, driven by surging food and energy prices across Europe, heavily impacted the European corporate bond markets. In addition, the UK bond markets were also negatively impacted by the political instability in the UK, particularly from Q3 2022 onwards. Overall there were 993 issuances and c.€644bn raised in 2022, compared with 1,326 issuances and c.€855bn raised in 2021.

After record levels of high yield bond issuances in 2021, 2022 saw activity significantly dwindle, as borrowing costs increased for issuers, and investors worried about the risk of default. The volume and number of high yield issuances in 2022 were more than 60% lower than 2021, 148 deals and c.€63bn raised compared to 386 deals and c.€200bn raised in 2021.

Investment grade activity decreased in 2022 compared to 2021, with 845 deals amounting to c.€581bn compared to 940 deals and c.€655bn, respectively. The year commenced with a flurry of activity and Q1 2022 proved to be a strong quarter for investment grade issuances. However, investment grade activity declined in the following quarters as interest rate rises drove borrowing costs up for issuers and higher rated companies turned to alternative cheaper sources of private financing.

Green/ESG bonds

Green/ESG bonds activity by year*

The green/ESG bond market in Europe showed signs of maturing following unprecedented growth in the number and value of deals since 2018 and a record quarter at the beginning of the year. Overall, 2022 saw a slight decrease in the number of deals, with 286 completed deals compared to 297 in 2021, however green/ESG issuances represented c.29% of total issuances in Europe for the year, compared to c.22% in 2021. Total proceeds for 2022 were higher compared to 2021, despite the reduced number of deals with c.€170bn raised compared to c.€157bn in 2021.

The spectre of ‘greenwashing’ remains, and some steps were taken in 2022 to tackle investor concerns and promote transparency. The Sustainable Finance Roadmap 2022-2024 was published this year by the European Securities and Markets Association (‘ESMA’) and the UK Financial Conduct Authority (‘FCA’) has proposed adding labels to ESG products to distinguish the level of sustainability. As the sustainable finance market continues to mature, it is expected that regulators will prioritise proposals for stricter regulation around greenwashing.

Outlook for 2023

The unfavourable market conditions in 2022, resulted in some companies delaying their issuances. 2023 started off with strong demand for European corporate bonds, as market sentiment improved and investors sought to take advantage of high yields. We expect that companies needing to refinance existing debt, rather than new issuers, are likely to be the main driver of issuances in 2023.

Central banks raised interest rates at an unprecedented pace in 2022. However, with signs that inflation is cooling, we expect interest rate hikes to slow down in 2023 and interest rates may finally reach peak levels in 2023. We expect that as markets stabilise and there is less volatility, corporate issuances should increase. However, with the threat of a recession looming, investors may still be cautious and worry about the risk of default and therefore avoid companies with lower credit ratings and focus on investment grade bonds, which are deemed less risky.