CHICAGO--(BUSINESS WIRE)-- Fitch sees last week's revival of high-yield corporate bond issuance and a reversal of recent fund outflows as a potential catalyst for stronger leveraged issuance in the fourth quarter.

Driven in part by positive news on the Eurozone crisis and generally solid U.S. corporate earnings trends in the third quarter, high-yield bond issuance surged to $5.4 billion in seven new deals last week. The largest transaction was Kinetic Concepts' $1.7 billion seven-year bond deal, which was followed on Friday by new issuance from Ford Credit.

This represented the biggest week of leveraged issuance since July, and followed several weeks of near-dormant market conditions that kept most high-yield issuers on the sidelines. Fitch views heavy retail investment flows back into high-yield funds last week as a critical driver of the market's recovery. Through the remainder of the fourth quarter, a sustained pick-up in new bond and loan issuance activity will hinge on a continuation of positive fund flow trends.

While the relative openness of leveraged finance markets in the first half of the year enabled much of the 2012 corporate refinancing challenge to be addressed, high-yield borrowers will still need good market access moving into next year to refinance debt coming due in 2013 and 2014.

In addition, some high-profile leveraged issuers such as Sprint and Ford Credit will benefit from a sustained tightening of spreads and strong investor appetite, enabling them to meet heavy refinancing requirements over coming weeks.

Although activity in the primary market for leverage loans picked up last week, the pipeline of new deals remains relatively thin. The forward calendar for new leveraged loan deals is now under $8.5 billion. The decline in loan activity reflects not only the widening of loan spreads since midsummer but also less attractive LBO economics as assumed revenue growth rates have been pared back in line with the softening global economic outlook for 2012.

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The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article, which includes hyperlinks to companies and current ratings, can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings.

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