KPMG Debt Market Snapshot Edition Q1 2023

The KPMG Debt Market Snapshot Edition Q1 2023 is here. With the aim of keeping you up to date on the latest developments and trends in Europe's financing markets, our Debt Advisory experts use current market data to discuss prominent market drivers and provide first-hand insights from daily practice. Read more in our most recent release.

Overview: As Russia's invasion of Ukraine is entering its second year, European economic growth remains fragile. The European economy has weathered the worst of the energy crisis on the back of a relatively mild winter and economic conditions remain favourable at the beginning of the year. In Q1, European capital markets were also affected by the erosion of trust in the global banking sector following the collapse of Silicon Valley Bank, among other US banks, as well as the forced rescue deal for Credit Suisse. Following steep interest rate hikes in 2022, persistently high inflation requires interest rates to remain in restrictive territory. In March 2023, the ECB further raised rates by 50bps to the highest level since the global financial crisis.

Following the end of a decade of cheap debt financing, markets are in a process of adjustment. With higher-for-longer rates and as financing conditions tightened, lenders' risk tolerance is decreasing and financing liquidity is becoming scarcer. This, combined with a stagnating economy could expose financial vulnerabilities and lead to further pressure, especially for weaker-rated borrowers. Nevertheless, European debt markets overall demonstrated resilience and had a solid start to 2023, before the effects of turmoil within the banking sector could be felt.

• The Schuldschein Loan market recorded its best Q1 ever with a volume of ~€7bn. Out of the 33 SSD deals, a remarkable 12 of these incorporated ESG features, marking the highest proportion to date. In the first quarter of 2023, the market saw a stronger return of domestic issuers compared to the previous year.
• The Leveraged Loan market continued to sink in Q1 2023, reaching again for the second time in consecutive quarters a new 10-year low. The leveraged loan market saw a total volume of €8bn, this marks a decline by ~58% YoY.
• The High-Yield Bond market had a solid start in 2023. The HY market recovered and surpassed its weak 2022 performance. With an issuance volume of €12.7bn, Q1 2023 saw the strongest quarterly volume since Q4 2021.