OREANDA-NEWS. Fitch Ratings says in a new report that US companies' bond issuance in European currencies surged 3.5x yoy in 7M15, to a record of EUR66bn equivalent, as US-Europe monetary policy divergence provided them with the opportunity to access cheaper funding in the European credit market.

Repeat, investment-grade issuers and corporations with European exposure dominated while smaller companies and speculative-grade issuers are also increasingly getting involved to lock in savings after swapping euro proceeds into dollars. Overall, EMEA corporate issuance rose marginally compared with last year and could set a record in 2015.

Bond rating downgrades in the energy and utilities sectors drove the rating trend lower in 1H15, with the upgrade-to-downgrade ratio declining to 0.3x in 1H15, from 0.9x in 2014. Russian issuers dominated downgrade activity in 1Q15 at two-thirds of volume, with 74% energy related, while German and French utilities collectively accounted for 66% of 2Q15's downgrade volume.

Corporates are increasingly turning to M&A as a way to navigate through anaemic growth projections, with M&A-related issuance rising 2pp to 15% of defined-use proceeds in 7M15, compared with 2014. Pharmaceuticals drove the majority of M&A issuance, accounting for 34%.

Issuers benefitted from a further drop in the average coupons to 3.5% in 7M15 and investor appetite for bonds with longer maturities as they seek to boost returns. The historically low cost of funding has been the key factor behind growing interest from international corporates and this trend is likely to remain a key support for primary supply for the rest of the year.

European high-yield has remained broadly resilient during the various bouts of market volatility so far this year and issuance remains on course to set a new record - boosted by M&A and the growing influx of US corporates tapping the European market. Fitch believes investors are using volatile periods as opportunities to re-enter the asset class at cheaper levels, with the sell-off in emerging markets boosting the relative appeal of European high-yield.

European corporate hybrid issuance continued to grow, with EUR22.2bn in new supply in 7M15, a notable pick-up over volumes achieved in the preceding two years. Demand for the asset class is high, with investors targeting yield, as returns for 'A' and 'BBB' rated senior unsecured paper are less than attractive.

The report, EMEA Corporates Bond Market Monitor, is available on www.fitchratings.com.