Companies most exposed to the coronavirus may see themselves locked out of the high-yield market as bankers start to dial down underwriting risk in affected sectors and investors cut exposure to autos, shipping and leisure companies. After a record start to the year for European junk bonds with the market seemingly open to all-comers, issuers and investors are finally starting to react to coronavirus risk. The market got its wake-up call on Monday, when world stocks matched their worst day in almost four years after a jump in coronavirus infections in Italy, South Korea and Iran. "We're starting to get more questions in credit committees, and certain things look like obvious passes," said one leveraged finance banker. "You have to be selective about what you underwrite, because at some point, this will feed through to earnings," he said. Sectors including shipping, autos, airlines and luxury goods are already being affected. In mid-February Jaguar Land Rover cancelled a US dollar debt raise after chief executive Ralf Speth said the company had to fly parts in suitcases from China to the UK to maintain production. "The impact on European GDP could be much bigger than the near-term impact to the high-yield market," said Azhar Hussain, head of global credit at Royal London Asset Management. "If the effects feed through, the economic data could look horrific. That scares me more than anything else, because the market is pretty late-cycle anyway." HOLDING PATTERN The market has turned on a dime. After one of the busiest starts to the year in European high-yield, just one bond was being marketed this week: a debut from marine survey company Fugro. That deal is expected to come with at least a 6 handle, according to three investors and two bankers. "Fugro probably picked the worst week to come to market," said one of the investors. "I'm surprised they haven't pulled it." With the exception of Fugro, European high-yield issuance is in a holding pattern, said several syndicate bankers. "Both investment-grade and high-yield issuers are 'playing it by ear' and watching markets," said a second syndicate banker. "For opportunistic issuers it is logical to wait for some stability before printing." Average yields in the European junk bond market have jumped to 3.8% from 2.7% in less than a week, according to Refinitiv iBoxx data. "The effects of the coronavirus on the market are amplified due to the fact that companies are already highly-levered," said Marina Cohen, head of European high-yield at Amundi. "BORROWERS ARE KICKING THEMSELVES" French shipping company CMA CGM has seen its near-term refinancing chances vanish after its bonds sank. CMA has two big maturities coming up: a €725m 7.75% Jan 2021 and a €650m 6.5% Jul 2022. The company had been meeting with investors to discuss refinancing its debt in January, when the bonds were at 99.5 and 96, respectively. But after sending out two advisories on coronavirus in recent weeks and reducing its activity to China, the company's bonds tumbled. By Thursday the 2022s had slumped to 80, according to Tradeweb data, with the 2021s at 87.5. "CMA requires a really strong market and has very near-term maturities and is extraordinarily exposed to coronavirus," said one investor. "It has a maturity due in less than a year from now and is trading well below par. It's a difficult situation," he said. Bonds further out its curve are also struggling. The 5.25% Jan 2025s were bid at 68.65 for a yield of 15% on Thursday. They were at 87 or 9% in January. "Some borrowers will be kicking themselves that they didn't move faster," said a second investor of CMA. "A month and a half ago they had perfect conditions. Now, they've got no chance." OTHER SECTORS Investors are picking their spots in high-yield, pointing out that recovery rates will differ. For leisure-related industries like hotels, casinos and restaurants, the coronavirus impact could mean permanent losses, said Vivek Bommi, senior portfolio manager at
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