European M&A Activity Boosts Loan Volumes

Syndicated loans to European corporates, which showed weak activity in the first quarter of 2014 have since rebounded strongly, partly driven by a rise in merger and acquisition (M&A) activity says Fitch Ratings.

The credit ratings agency (CRA) reports that one of the largest loans in recent months was German chemicals and pharmaceuticals group Bayer’s €9bn equivalent one-year bridge loan to acquire Merck’s consumer healthcare business – a good example of the increased M&A.

The takeover will create the second-largest global consumer health company, and is part of a recent spate of major pharmaceutical M&A. The deal followed increased competitive pressure from the asset swap between Novartis and GlaxoSmithKline, which combined their consumer healthcare arms to create the new global leader. Bayer has already partially refinanced the loan with two hybrid issues. Depending on closure timing, the bridge loan may never be used.

Refinancing is another strong trend. Mining group BHP Billiton refinanced a €4.3bn equivalent five-year syndicated loan two years early to take advantage of cheap pricing,

New loans in Q214 loans reached €170bn at 24 June, according to data from Dealogic; a rise of 59% on the previous quarter and a 33% increase on Q213. There were 16 deals of €2bn equivalent or more.

European syndicated loan volumes have been €100bn-200bn a quarter since the financial crisis. In Q114 new loans fell 33% from a year earlier to €107bn – the lowest amount in any quarter since early 2012 and less than a quarter of the €456bn peak seven years ago in Q207.

Companies across the region are increasingly favouring bond issuance, partly as a result of banks’ deleveraging but also of a desire to diversify funding sources and take advantage of historically low long-term funding rates. Bond issuance peaked at €190bn in Q109 and has moved in a band of €50bn-150bn a quarter since then. Issuance to date in Q214 was €95bn.

Although quarterly issuance is highly volatile, total new debt issuance (bonds and loans) has stayed within a relatively narrow band of €200bn-300bn a quarter since the crisis, after a €547bn peak in Q207 that was mainly driven by the lending boom, although bond issuance also rose to a historical high of €91bn at that time. Total corporate debt raising (bonds and loans) has been €265bn to date in Q214, up 6% on Q213.

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