A strong finish in the fourth quarter for the high-yield bond and leveraged loan market contributed to another record-setting year as noted in Fitch Ratings' new 'U.S. Leveraged Market Quarterly' report. Leveraged loan issuance hit a record-high $1.14 trillion.

Credit quality among most U.S. companies remains broadly stable; however, outpacing upgrades to downgrades may suggest an improving U.S. economy. U.S. economic growth accelerated to an annual rate of 4.1% in third-quarter 2013, largely because of increases in personal consumption expenditures and inventories. Fitch expects real GDP growth to strengthen to 2.6% in 2014, underpinned by a stronger housing market, rising employment and improving corporate profitability.

Eight issuers defaulted during the quarter totaling $5.1 billion, bringing the 2013 total to 36 issuers defaulting on $18.5 billion in bonds. The U.S. high-yield default rate ended 2013 at 1.5%. Fitch projects the default rate will remain relatively stable in the range of 1.5%-2.0%.

Fourth-quarter 2013 marked the lowest quarterly total for high-yield bond issuance in 2013 at $64.9 billion, down 13% from third-quarter 2013. Despite the slower fourth quarter, the market finished with over $300 billion in bond issuance for the second straight year. The Bank of America Merrill Lynch U.S. High Yield Master II Index returned 3.5% for the fourth quarter, bringing the full-year 2013 return to 7.4%, compared to 15.6% in full year 2012.

A strong finish to 2013 capped off a record-setting year for the U.S. leveraged loan market, with issuance reaching $1.14 trillion. Refinancing and repricings accounted for more than 58% of total loan issuance in 2013. Riskier deal structures started to appear mid-year in the form of M&A, LBO and dividend recapitalization transactions. This trend continued through the end of the year. Retail loan funds took in more than $63 billion in 2013, with all 52 weeks posting a positive inflow.

Forty-nine U.S. CLOs totaling approximately $23 billion priced during the fourth quarter. Issuance for 2013 finished at $80.2 billion, surpassing 2006 CLO issuance levels of $79.8 billion and approaching 2007 levels of $92.6 billion. Rating Outlooks on CLO notes are stable primarily because of stable credit profiles on underlying loans, low leveraged loan default projections and robust credit enhancement in the form of par subordination, compared with applicable rating stresses.

This quarter's report, Fitch's 'U.S. Leveraged Market Quarterly,' also highlights the 2014 U.S. Corporate Outlook and recent developments in the U.S. Coal Producers sector.

The full report 'U.S. Leveraged Finance Quarterly' is available at www.fitchratings.com/sectors/Corporate Finance/Leveraged Finance.

For more information, visit: www.fitchratings.com/usleveragedfinance.

Additional information is available at www.fitchratings.com.

Applicable Criteria and Related Research:
--'The Credit Outlook' (Jan. 2014);
--'Fitch U.S. High Yield Default Insight -- 2014 Default Outlook' (Dec. 2013);
--'U.S. Leveraged Finance Stats Quarterly -- Second Quarter 2013' (Nov. 2013);
--'Fitch 50 -- Structural Profiles of 50 Leveraged Credits' (July 2013);
--'Leveraged Finance Annual Manual for the Americas' (April 2013).

Applicable Criteria and Related Research: U.S. Leveraged Finance Market Quarterly - Fourth-Quarter Synopsis/2014 Preview
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=729577

U.S. Leveraged Finance and the Credit Cycle (Do Signs Point to a Return to the "LBO Boom" Days?)
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=707817
Leveraged Finance Annual Manual for the Americas
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=704760
The Credit Outlook
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=729296
Fitch 50 Europe - July 2013
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=712340
Fitch U.S. High Yield Default Insight -- Steady Defaults, Evolving Base
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=710775
U.S. Leveraged Finance Stats Quarterly -- Second Quarter 2013
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=717636
Fitch U.S. High Yield Default Insight -- 2014 Default Outlook
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=726738

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Fitch Ratings
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Managing Director
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