* Loan volume 41 pct down on Q1 2013
* Trafigura's $4.735 bln refi the biggest deal of Q1 2014
* Leveraged loans of $21.4 bln is 57 pct down on Q1 2013 (Adds leveraged loan and emerging markets data)
By Alasdair Reilly and Claire Ruckin
LONDON, March 31 (Reuters) - Syndicated lending in Europe, the Middle East and Africa (EMEA) fell to $140.2 billion in the first quarter, the lowest first quarter volume since $128.7 billion in 2004, and 41 percent down on first quarter 2013, Thomson Reuters LPC data shows.
Low deal flow has seen terms and conditions for borrowers continue to improve as banks bid aggressively to win rare mandates but with bond markets and equity markets open for business, borrowers have an increased range of funding alternatives to choose from.
"It's strange that volumes aren't reflecting the wider level of activity, the amount of good client engagement and the amount of pitching that is going on. The market feels pretty positive, it's just that there has been limited follow through to actual deal flow," a senior banker said.
The continued absence of large-scale M&A financing also hit volumes. Loans backing acquisitions were 61 percent down year-on-year at $15.2 billion as borrowers postponed purchases, turned to other markets for funding or used cash of balance sheet.
Despite competitive market conditions that have led to a further squeeze on pricing, refinancing was down 31 percent down year on year, as most refinancing has already been completed with only a few big names remaining to tap the market.
Investment-grade lending to Europe's higher rated companies fell 30 percent in the first quarter to $91.87 billion, while high-grade M&A loan volume of $5.8 billion was nearly 77 percent down on the same period last year.
Investment-grade refinancing volume totalled $74.2 billion in the first nine months, a fall of 44 percent year on year.
Commodities traders continued to supply much needed volume to the market, Trafigura signed a $4.735 billion loan refinancing at the end of March, the biggest deal of the quarter, while soft commodities trader ED&F Man signed a $2.287 billion refinancing also in March [ID: nRLP44030a] [ID: nRLP44030a].
The disappointing volumes so far this year has left bankers wondering where future deal flow will be coming from. Tired of a diet of cheap refinancing for highly rated corporate, many banks have started to search for yield, targeting peripheral economies and cross-over credits.
"On the face it, volumes might be disappointing, but the numbers and types of deals we are seeing means that pricing and fees that are being booked are healthier than on the big investment grade refinancings that dominated last year," another banker said.
Spain's Telefonica and Ba1/BB+ rated German cement maker HeidelbergCement both agreed 3 billion euro ($4.13 billion) refinancings in the first quarter. [ID: nRLP40506a] [ID: nRLP41221a]
Meanwhile, Danish outsourcing firm ISS backed its initial public share offer with 2.85 billion euros of new loans as it moved to deleverage and put its financing on a more corporate footing. [ID: nRLP41606a]
Lending in the EMEA emerging markets, including Africa, Central and Eastern Europe and the Middle East was down 68 percent in the first quarter to $16.13 billion. The largest deal in the emerging markets was a 7.2 billion Saudi riyal ($1.92 billion) loan for Saudi Airlines to fund its plane deliveries and growth plans.
Meanwhile, Russian coal producer SUEK signed a $1.5 billion, five-year pre-export financing in January, which was for refinancing and general corporate purposes. [ID: nRLP38548a] SUEK signed the loan before Russia's involvement in Crimea delayed the progress of most of the loans that were being worked on for Russian corporate borrowers.
LEVERAGED LOAN SLUMP First quarter leveraged loan volume of $21.4 billion was a massive 57 percent lower than the same period in 2013 and the lowest first quarter total since 2010, as depressed levels of event-driven deals continued to hamper lending activity, and refinancing opportunities dwindled.
"A lot of deals have already been refinanced last year so there isn't that much left to do this year," a banking source said.
Leveraged loan volume was outperformed by the buoyant high-yield bond market, where issuance hit $55.9 billion, the highest quarter total ever recorded in Europe.
Leveraged buyout volume of $2.58 billion was the lowest first quarter total since $1.55 billion was recorded in 2009, in the aftermath of the financial crisis.
Leveraged loan refinancings and buyout activity have been hindered by the high yield market and buoyant stock markets, as sponsors look to IPO to cut leverage levels and improve financial structures.
The largest leveraged loan of the quarter was a corporate event driven financing totalling 4.4 billion euros-equivalent backing Dutch operator Ziggo's acquisition by US cable group Liberty Global. The loan was raised in the US and European markets and included a 2.65 billion euro tranche.
The next largest buyout financing was a $1.5 billion bridge loan for Spanish blood products group Grifols to back its acquisition of the blood diagnosis business unit of Novartis .
"There is no obvious reason why M&A has been very quiet but sales can take a while to come to fruition and at the backend of last year there were fears of tapering, which delayed many processes. The pipeline is growing," the banking sources said.
About 18.5 billion euros of leveraged buyout financing in the immediate M&A pipeline is expected to take some pressure off an overheating market and boost bankers desperate for underwriting and investors eager to put mounting cash piles to work.
Cable group Numericable's potential acquisition of Vivendi's SFR will require around 13.5 billion euros of debt financing, split between loans and bonds, and the acquisition by Advent International and Bain Capital of card payment services company Nets would need about 1.2 billion euros of debt financing.
Credit Agricole CIB leads the EMEA syndicated loan bookrunner table for 2014, with pro-rata volume of $8.6 billion from 20 deals. BNP Paribas is second with $6.4 billion from 29 deals, while Deutsche Bank is third with $5.7 billion from 23 deals. ($1 = 0.7271 Euros) ($1 = 3.7503 Saudi Riyals) (Editing by Christopher Mangham)