Secured Debt Gains Ground in the High-Yield Landscape
June 26, 2025
If, like me, you have been wondering why it seems as if more high-yield bond deals are secured than they historically have been, it is more than perception — it’s reality. The issuance of senior secured bonds has spiked recently. Over the past five years, the percentage of the U.S. high-yield bond market that is secured has increased from approximately 20% to nearly 35%.
Secured bonds have assets pledged to lenders as collateral. These assets can be physical in nature, such as a building or inventory, or they can be a pledge of the equity of the business. The collateral provides additional protection to creditors over that of unsecured bonds in the event the issuer defaults on the debt. Secured lenders also benefit from a priority claim over unsecured lenders in the event of a default. As a result, secured notes generally have a higher recovery rate than unsecured notes.1 According to S&P Global, the mean recovery rate for senior secured bonds from 1987 to 2023 was 58.1%, comparing favorably to the recovery rate of 44.8% for unsecured bonds during the same period.2
While there are several factors contributing to the dramatic increase in the percentage of bonds issued that are secured, the technical backdrop may be the driving force. Higher interest rates have increased the cost of borrowing money over the past few years, especially for riskier credits. One way to mitigate the higher cost of borrowing is to offer secured debt versus unsecured debt. Secured debt is often less expensive to issue due to its enhanced protections. Borrowers tend to look to the loan market to issue secured debt; however, current market conditions have made it cheaper to issue debt in the high-yield market.
Key Takeaway
So, where do we go from here? As the yield curve “normalizes” as it has in 2025, and potential rate cuts approach, which would reduce the overall cost of borrowing, one might expect to see a reduction in the percentage of high-yield bond deals that are secured. However, that has not occurred yet. In fact, of the ten companies that priced high-yield bonds during the holiday-shortened week from June 16 to June 20, seven offered secured bonds, while only three issued unsecured bonds.3 While we may begin to observe a decline in the preponderance of secured bonds over the next 6-12 months, it remains to be seen whether the market will return to a more modest level of secured high-yield debt that existed prior to the recent expansion.
Sources:
1,2S&P Global - Default, Transition, and Recovery: U.S. Recovery Study: Loan Recoveries Persist Below Their Trend; 12/15/23
3Bloomberg
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