High Yield and Leveraged Finance: Covid-19, ESG, SPACs and CLOs

As the market recovers from the Covid-19 crisis, the future of high yield and leveraged finance could lie in ESG and SPACs.

High yield (HY) and leveraged finance ended 2020 reasonably strongly despite the pandemic-related slowdown, and 2021 generally looks positive, with increasing and broader-based activity in mergers and acquisition (M&A), equity – initial public offerings (IPOs) and carve-outs – and leveraged finance, speakers at BNP Paribas’ 17th High Yield and Leveraged Finance Conference found.

HY bond yields have now recovered back to virtually the same levels as a year ago (3.25% this January), however investor interest remains strong in an environment where investment-grade yields are on average just 0.25%.

A Positive Outlook for Primary Markets in 2021

Three key takeaways from the conference:

  • Positive returns and inflows are expected in HY and leveraged loans
  • An increase is anticipated in the formation of collateralised loan obligations (CLOs)
  • Supply is expected to increase year-on-year in EUR, driven by M&A, leveraged buyouts and more challenging credits

“It was evident throughout the conference that investor consensus is optimistic towards 2021 leveraged credit returns”
– Stanford Hartman, Head of High Yield and Leveraged Loan Syndicate, BNP Paribas

Normalisation – now or when?

What happens to the different kinds of companies in the high yield space will depend largely on the extent of market “normalisation”. Participants in the conference tended to divide sectors and companies between those that resisted or even benefited from the pandemic, and those that suffered from it, like travel and leisure. Covid-resilient companies had a big year in 2020, whereas the Covid-sensitive ones will only benefit once some kind of normalisation takes place – though participants at the conference stressed the necessity for granular analysis, as not all credits within a sector will be affected in the same way. The question is: when will things really return to normal and what will the ‘new normal’ look like?

With vaccinations generally expected to bring herd immunity and thus normalisation in the second half of the year, 2021 could see one of the biggest positive demand shocks in history, with a “V-plus” shaped recovery and “back-to-work” type stocks outperforming “stay-at-home” ones, according to research from Exane BNP Paribas. Consumers who saved through the lockdowns will return to gorge on areas such as leisure. In the US, consumers have saved $2.5 trillion and with more stimulus to come, they will get spending. China was cited as a template for this V-plus shaped recovery, reflected in almost every consumer spending sector. 

When – and if – normalisation happens, for high yield issuers and investors there remains the question of what this will look like. Sector specialists pored over questions such as whether people will return to shops and offices, and whether cinema has had its day in light of the significant increases in subscriptions to streaming services.

Virtual transactions

One positive outcome of the Covid-19 crisis has been the huge progress in taking transaction processes “virtual”, which adds flexibility and saves time, allowing more investment decision-makers to meet corporate management teams and bringing people across the world together instantaneously.

The typical IPO timeframe, for example, can be accelerated by at least three weeks, according to ECM specialists from BNP Paribas. A template for accelerated virtual IPOs was provided by JDE Peet, the world’s largest coffee and tea group by revenue, with its large IPO in May 2020: this was the first ever €1 billion+ IPO to be executed virtually, with the fastest-ever book build for an IPO of this size. The virtual roadshow took just three days compared to the usual physical two weeks.

SPACs – a trend to watch out for

Special-purpose acquisition companies (SPACs) – companies formed to raise capital through an IPO for the purpose of acquiring other companies – are currently widely debated, including in the high yield space, both by corporate clients targeted by them and, increasingly, by potential SPAC sponsors interested in tapping this new market. SPACs are considered either as an M&A tool or a listing one – a way to use a synthetic process to back into an IPO. Last year in the US, 200 SPACs raised about $64 billion – as much as the actual IPO market – and many transactions are priced for 2021. In Europe, where the investor base is not yet so deep, December 2020 saw the high-profile €300 million listing of 2MX Organic, whose ambition is vertical integration of Europe’s organic food markets. This could be the first of many such listings and an enduring trend in Europe over the next few years, adding to the considerable firepower of private equity sponsors.

ESG going mainstream in HY – more data soon?

Covid-19 has put a spotlight on financing and investing – and a recovery – linked to environmental, social and governance (ESG) issues. The integration of ESG into the Private Equity and HY and leveraged finance space has continued, and even accelerated, through the pandemic, and interest has permeated as far as collateralised loan obligations (CLO) investors.

Key to the growth of ESG structures in this space is companies’ gathering and provision of data. Many HY issuers and leveraged loan borrowers are smaller companies with fewer resources to dedicate to ESG data. However, the combination of new regulations in the EU, investor demand and the potential for cheaper financing thanks to ESG provisions should mean that such data becomes increasingly available over the next couple of years.

On the asset manager side too, adequate resources are needed to track data. Third-party ESG reports are necessary but not adequate, according to asset manager participants at the conference, who stressed the importance of an in-house, tailored and forward-looking approach to ESG data analysis.

The future is looking bright for ESG in HY and leveraged finance, which can benefit from the learnings of ESG structures in the investment grade space. With the arrival of a younger generation of investors, who want to deploy capital to positive effect, HY is especially ready to benefit as it is one of the few pockets of fixed income where positive income can still be assured.

Related solutions


ALiX has the full power of Cortex FX in a conveniently small window on your desktop. ALiX is indisputably pixel for pixel the most powerful FX platform on the market. Understanding everything from a spot ticket to a complex option ALiX is there to save you both screen space and time.


BNP Paribas has been present in the Americas for more than a century. It provides capital markets, securities services, financing, treasury and advisory solutions to corporates and institutional investors, together with an extensive retail banking network in the United States.


BNP Paribas has a strong heritage in the Asia-Pacific region, having established our presence over 150 years ago. Today the bank offers one of the region’s most comprehensive branch networks and provides investors with products and solutions tailored specifically to their needs.

Commodity Derivatives

With a global footprint and over 30 years of expertise in the commodities market, we are one of the few banks in the world with a long term commitment to the growth of our commodity derivatives franchise bringing innovative and ground breaking solutions to clients worldwide.

Cortex CD

Cortex CD is our online-cross commodity trading platform. It offers a wide range of hedging solutions for clients who are exposed to the price of physical commodities. The platform provides transparency and live pricing through its accessible interface and helps you track derivatives transactions on a wide range of energy and commodities.

Cortex Deposit

BNP Paribas’ corporate deposits platform, allowing you to quickly consult and securely trade deposits.

Cortex Equities

By harnessing the power of innovation, we continue to drive digital transformation and strengthen our electronic offerings for our clients by taking an agile approach.

Cortex Equities Americas

Cortex Equities connects you to the deep global pools of BNP Paribas’ liquidity and our long-standing expertise to help you manage it.

Cortex FX

Cortex FX is BNP Paribas’ advanced multi-product FX trading platform

Cortex iX

Cortex intelligent execution (iX) is the cutting edge FX spot algorithm execution service from BNP Paribas

Cortex Listed

Our best-in-class Execution Management System for listed derivatives trading, powered by Fidessa

Cortex Plus

Cortex Plus is our online derivative structures platform, providing live pricing and simple click and trade execution.

Cortex Rates

Cortex Rates offers a comprehensive range of Fixed Income Interest Rates products and services

Cortex Secondary

Cortex Secondary is BNP Paribas’ secondary market trading platform.


BNP Paribas has presence across most financial centres in Europe. Thanks to our strong local representation and long-standing relationships with governments and regulators we can offer unparalleled access to European, Middle Eastern and African markets.

G10 Rates

We aim to be a top-3 house in every asset, area and client. Our business has grown substantially and we operate a culture of “shared purpose”. Our focus is aligned around the social and economic outcomes of supporting our broad client base across Corporates and Institutional investors.

Markets 360

A radical new approach to strategy and economics to provide you with top quality views, focusing on evidence-based research and thought leadership. We bring economics and strategy together in thematic notes across asset classes, delivering what you need when you need it and continuously adapting to your needs.

Primary & Credit Markets

Our combined Primary and Credit business enables us to realise synergies while maintaining strict boundaries between the public and private sides. We provide solutions to clients throughout the entire credit continuum from origination through execution to secondary market trading and post trade services.

Prime Solutions & Financing

A global and cross-asset platform for the clearing of listed and OTC products, execution of listed derivatives, prime brokerage services, securities financing through repurchase agreement (repo), and a market leading electronic execution provider. Prime Solutions & Financing (PS&F) is one of four banks globally offering a full suite of investor services, from trading to financing, clearing and custody, in partnership with BNP Paribas Securities Services.

Smart Derivatives

SMART Derivatives is our cutting edge platform providing full integrated services from marketing, primary and secondary trading, to post-trade information on structured products, built around 3 interactive and complementary applications.