Total new debt (bonds and loans) issued by European corporates is heading for a post-crisis high in 2014 as lower-for-longer funding costs continue to drive mergers and acquisitions (M&A) and refinancing activity, reports Fitch Ratings.
“Total debt raised in the first nine months of this year was €881bn, up 10% on the same period last year,” said Monica Insoll, Fitch’s head of credit market research for Europe, the Middle East and Africa (EMEA) and Asia Pacific (APAC). “We expect full year total new debt to exceed the around €1 trillion seen in each of the last five years and approach 2007’s all-time high of €1.5 trillion.”
The value of takeovers involving European companies was up 25% on a year ago to US$1.04 trillion in the first three quarters of 2014, which is boosting demand for corporate funding. Notable activity this year includes mega deals in the telecoms sector: the acquisition of French telecommunications group SFR by Altice Group and Numericable; UK broadcaster BSkyB’s purchase of assets in Germany and Italy; and Orange’s takeover of Jazztel. All of these used bond funding, either fully or partly.
Syndicated loans bounced back in volume in the last two quarters and are up 23% so far this year. Bond issuance slowed in Q314 – a common seasonal pattern – and is down 5% year-on-year (YoY). However, the strong fourth quarter bond pipeline could still put 2014 close to the €502bn annual record of 2009.
The credit ratings agency (CRA) says itsbottom-up analysis reveals that the economic importance of bonds is twice as high as indicated by new issuance volumes, the bedrock of funding. Bonds have taken a rising share of corporate debt since the global financial crisis, now accounting for an average 83% of total debt of developed-market European corporates. This ratio is higher than indicated by issuance volumes for bonds and loans as the latter are typically only drawn for seasonal funding requirements.
Fitch’s report, entitled
‘Corporate Funding Disintermediation 4Q14’
is available at www.fitchratings.com.
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