Syndicated Loans to European Companies at Two-year Low

Syndicated loan volumes to European corporates in the first quarter of 2014 fell to €107bn, their lowest level since Q112 and almost one-third below the average since 1999, reports Fitch Ratings. The credit ratings agency (CRA) said the low figure is surprising in view of the generally improving economic backdrop.

Total debt funding (bonds and loans) to the sector has fallen by almost a quarter year-on-year (YoY) according to data from Dealogic. While quarterly bond and loan volumes fluctuate, this was the lowest amount of syndicated loans since Q112 when banks received support by the European Central Bank’s (ECB) long-term refinancing operations (LTROs), says Fitch in its quarterly report.

The reduction in corporate funding is unexpected in view of the generally improving economic environment. Nevertheless, Fitch believes it is more likely to be demand than supply driven and may partially reflect subdued corporate capital expenditure (capex) plans for 2014.

Companies are focusing on reducing debt and conserving cash in the face of slowing emerging-market growth and continuing political turmoil in Russia and Ukraine. Many issuers have also significantly pre-funded this year’s debt maturities, taking advantage of favourable funding conditions since mid-2013, resulting in relatively comfortable liquidity positions in the near term.

The lower loan volumes were regionally broad-based. In Germany, the UK and France, which together accounted for half the total, companies borrowed 23% less than in Q113. Russian corporate borrowing was down 80%. There was a mixed picture in the eurozone periphery, with Spanish companies adding 19% but levels in Italy down 91%.

The drop in bank lending has driven further funding disintermediation, with bonds accounting for a near all-time-high 54% of total new corporate debt funding in Q114, almost double the 30% annual average since 1999.

The full report, entitled
‘European Corporate Funding Disintermediation 2Q14’
, is available at www.fitchratings.com

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