European Companies Adjusting to Scarce Bank Credit, Finds Greenwich Associates

Large European companies are scaling back expenditures and locking in funding from investors in the debt capital markets where they can amid continuing deterioration in bank lending markets.

Roughly half the 263 large European companies surveyed by Greenwich Associates between 20 May and 5 June, 2009, say their access to bank revolving credit facilities and term loans continued to decline over the past three months. Among the remaining companies, about 40% overall say their ability to access bank financing was unchanged over the period, and only about one in 10 say bank credit has become easier to secure over the past three months.

With bank credit in short supply and the global economy mired in recession, European companies appear to be retrenching. Forty percent of the large companies participating in this Greenwich Market Pulse say they have cut back on funding requirements for capital expenditures, and half have reduced the amount of capital required for acquisitions. Thirty percent of companies say they have reduced the amount of capital required to fund operations. (About 20% say their need for working capital has increased and half say it has not changed over the past three months.)

“These results do not paint a bright picture for European companies or for the European economy as a whole,” said Greenwich Associates consultant Robert Statius-Muller. “Despite the best efforts of governments, it appears that it has become harder, not easier, for many European companies to get bank credit over the past quarter. The resulting reduction in corporate demand for capital for strategic investments and, on a more limited basis, operations is clearly a contractionary signal.”

The one encouraging sign for companies this year has been the strength of Europe’s debt capital markets, where the rush of companies looking to tap willing investors with long-term bond issues has pushed new issuance to record levels and even high yield issues have begun to get priced. However, the survey results illustrate that long-term bond issues remain a viable option for only a portion of European companies. While slightly more than a quarter of surveyed companies say it has become easier to access financing through long-term bond issues over the past three months, 30% say their access to the debt capital markets was further reduced over that period. (Forty-three percent say their ability to access long-term bond markets was unchanged.)

Conditions appear similar in European commercial paper markets, in which 20% say their access to funding improved in the past three months, 33% say it declined and 47% say it was unchanged.

The survey results suggest that government rescue programmes have done little to improve companies’ access to affordable credit. In fact, banks that have received support from national governments are much less likely than those that avoided public sector assistance to be cited by European companies for ‘demonstrating loyalty and commitment’ to corporate clients. Companies with specific complaints about the performance of government-assisted banks claimed that these banks are: charging higher prices for credit than banks that did not receive government capital; restricting their lending to foreign companies; and lacking consistency in strategy and/or credit policies.


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