US HY looks healthy on a credit fundamental basis

Credit metrics improved at an accelerating rate in 2Q supporting a sound fundamental backdrop for most US HY companies. Rising revenues & EBITDA and further declines in leverage (now lowest since the pandemic began) bring interest coverage metrics to record highs.

However the overall numbers mask significant sector dispersion. Credit metric strength in 2Q continues to be skewed higher by the Automotive, Gaming/Leisure and Energy sectors which continue to recover from severely impacted numbers during the pandemic. Meanwhile Retail, Food &Bev, and Technology continue having difficulties passing along costs due to high inflation and are experiencing greater margin pressures.

While the US still looks healthy on a credit fundamental basis, with inflation starting to ease and  more resilient demand, European companies face bigger concerns on the back of higher inflation/energy costs, first affecting input costs and now increasingly putting pressure on the demand side.