Investor demand for debt from non-financial issuers has enabled Europe, Middle East and Africa (EMEA) and US corporates to issue new debt at more than double the rate of maturities so far in 2012, while pulling the cost of funding for some big corporations to record lows, Fitch Ratings says.
The credit ratings agency (CRA) adds that the figures highlight the disintermediation trend in Europe and the perceived safe-haven status of these sectors compared with the EMEA financial sector, where issuance slowed. Nevertheless, EMEA financials issuance is still only marginally below the rate at which debt is maturing.
Fitch’s research shows that new bond volume from EMEA non-financial issuers in the first nine months of 2012 rose 81% compared with the same period in 2011. In aggregate the sector issued bonds at twice the rate of 2012 maturities, tempted by levels of demand that have pushed median fixed-rate coupons to record lows for all rating categories above B. US issuers – further removed from the European crisis – have been even more active. Issuance from financials through the nine months to September 2012 exceeded scheduled bond maturities by a ratio of 1.1 to 1 and for non-financial issuers the ratio was 3.9 to 1.
While corporate issuance has rallied sharply and the strongest issuers have ready access to further funding, we do not expect European corporates to abandon the cautious stance on spending they maintained throughout the downturn.
The increase in issuance partly reflects continued funding disintermediation as corporates tap markets directly to replace banks loans. EMEA total loan issuance in the first nine months of the year was €403.1m against €777.5m for 2011 as a whole. Capex and dividends have also returned to healthy levels but mergers and acquisitions (M&A) spending remains low and companies launching share buybacks typically have strong credit profiles and stable cash flows. In the US, non-investment-grade corporates have used the strong demand to push out maturities, while investment-grade companies have significantly lowered their interest costs.
Among EMEA financial issuers, lower investor demand for senior unsecured debt has contributed to falling issuance volumes. Senior unsecured volumes were down 15% to €243bn in the first nine months of the year, but issuers had still replaced 71% of total 2012 maturities by the end of September and issuance has picked up recently. Deleveraging and disintermediation are also reducing the amount of maturing debt that European banks need to replace, while central bank support, including the European Central Bank’s (ECB) long-term refinancing operations (LTROs) around the start of the year, have reduced funding pressures.
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