2025 European High-Yield Bonds Wrap: Day-1 Covenant Capacities Steady Even as Aggressive Terms Inch Up, Calling for Greater Investor Focus in 2026

Legal Analysts: Bart Capeci, Aditya Khanna
Data Visualizations: Elisabeth Campbell, Charlie Ward

Key Takeaways

• Volumes increased, yields tightened and maturities shortened: After a slow start, primary European high-yield volumes surged to a record €140.9 billion in 2025, with €24.2 billion issued in June alone. Average yields to maturity fell to 6.2% in the fourth quarter, the lowest since the beginning of 2022. The average tenor was 5.6 years, down slightly from 5.8 years in 2024.
   
• Refinancings dominate: Debt refinancing remains the primary use of proceeds, at 72% of deals, while M&A and LBOs disappointed against expectations at the start of the year, at just 12%.
• Day-1 covenant capacities hold steady: Overall, quantifiable covenant capacities held steady in 2025, with capacities for transfers to unrestricted subsidiaries increasing slightly, additional structurally senior debt decreasing marginally and additional senior secured debt and shareholder payments largely unchanged.

• Aggressive covenant terms proliferate and pushback slumps: While a number of aggressive terms (such as the “Available Amount” second restricted payments builder basket and alternate ratio debt tests) held steady and some (such as super-grower baskets) even declined slightly, a greater number increased in prevalence. In particular, builder basket quarterly zero floors, “no worse than” ratio debt tests and dividend-to-debt toggles all saw a larger increase than others. At the same time, investor pushback declined considerably.
   
• LME protections remain low: The rise of liability management transactions in Europe hasn’t resulted in an increase in LME protections.

This year-end wrap examines covenant trends seen in the European high-yield bond market in 2025 and what we expect to see in 2026. Our summary of key European LMEs in 2025 is HERE, Part 1 of our 2025 EMEA distressed and restructuring review is HERE and Part 2 is HERE, and our wrap on English Part 26A restructuring plans is HERE.

Part 1 – 2025 European High-Yield Primary Market Issuance
In the first part of this report, we look at the overall state of the European high-yield bond market, including market volumes, coupons and maturities based on information derived from the Octus primary market database. Our analysis in this first part covers the broader European high-yield bond market, including eurobonds, Nordic bonds and “high-yield lite” bonds with abbreviated covenant packages.

Primary Market Volumes Surge
Primary volumes surged to a new high in 2025. According to Octus data, a total of €140.9 billion of high-yield bonds were issued during the year, up 29.9% from €108.5 billion in 2024 and surpassing the previous record of €117.5 billion reached in 2021.

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The record levels in 2025 were achieved notwithstanding a slow start to the year, with volumes in the first quarter of just €19 billion, down nearly a quarter from €25 billion in the first quarter of 2024. This continued into April, which saw only €6 billion of deals, just under half the €10.7 billion in April 2024. However, once market jitters around U.S. tariff policies faded the market returned in strength, with volumes in each of May, June, July and September exceeding €20 billion and the €24.19 billion issued in June setting a new record for a single month since Octus started tracking the market in 2021.

In terms of credit quality, there was a slight shift to higher rated bonds. Single B bonds continued to make up the largest rating category at 56%, although down from 62% in 2024. This was counterbalanced by growth in BB bonds, the next largest category at 42%, up from 36% in 2024. CCC bonds remained a relatively stable but small minority at 3% in 2025 from 2% in 2024.

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Coupons and Yields Trend Downward

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Coupons on fixed-rate high-yield bonds ranged from 3.625% to 12.25%, generally up from 2.6% to 8.1% in 2024. After a slight uptick between the first and second quarters, average yields to maturity declined during the rest of the year, finishing at 6.2% in the fourth quarter, the lowest we’ve seen since the beginning of 2022.

Use of Proceeds – Refinancings Drive, M&A Disappoints

Debt refinancing remains the primary use of proceeds at 69% of deals, down from 73% in 2024, but equal to the 69% seen in 2023. M&A and LBOs were the second largest use at 12%, unchanged from 2024 and up slightly from 11% in 2023. Dividend recaps were 3% in 2025, up from 1% in 2024 and 2% in 2023. However, when taken together with refinancings where a dividend was also paid, dividend recaps were 6%, down from 8% in 2024 but on a par with the 5% seen in 2023.

To read the full piece, please reach out to [email protected]