Fitch: Loan Slump Cuts European Corporate Funding by a Quarter

Mon Apr 7, 2014 7:52am EDT

(The following statement was released by the rating agency) LONDON, April 07 (Fitch) A sharp drop in syndicated loans to European corporates in 1Q14 resulted in total debt funding to the sector falling by nearly a quarter year on year, according to Fitch Ratings' analysis. The drop in bank lending drove further funding disintermediation, with bonds accounting for an all-time-high 54% of total new corporate debt funding, almost double the 30% annual average since 1999. New syndicated bank lending to companies across Europe fell 33% from a year earlier to EUR107bn, according to data from Dealogic. This was the lowest amount in any quarter since early 2012 and less than a quarter of the EUR456bn peak in 2Q07. In contrast, while bond issuance was down 8% to EUR127bn, this was the third-highest amount in the last two years. In aggregate, total new debt funding (bonds and loans) fell 22% to EUR215bn. We believe the drop in European corporate funding is more likely to be demand than supply driven and may partially reflect subdued corporate 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. Issuers have also significantly pre-funded upcoming debt maturities, taking advantage of favourable funding conditions since mid-2013, which will give them relatively comfortable liquidity positions in the near term. The lower loan volumes resulted from reduced lending to corporates in both western and developing Europe. In Germany, the UK and France, which together accounted for half the total, companies borrowed 23% less than in 1Q13. 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 regional pattern was different in the bond market. Companies in the three largest western economies accounted for almost two-thirds of new issuance, which was down only 3%. However, Russian corporates struggled just as much in the bond market as with loans, with new issuance down 85% to EUR1.2bn. This was also sharply down on volumes of EUR10bn in 2Q13 before concerns about Fed tapering hit demand. Market access is likely to remain restricted as long as the Ukraine crisis persists. Two major industries drove the reduced fundraising in both the bond and loan markets. Utility and energy companies raised 21% less bond and 60% less loan volume, while telecoms took up 41% and 26% less respectively, compared with the same quarter last year. The bond market continues to provide funding at low rates, with risk premiums shrinking across the credit spectrum due to the more distant prospect of rising interest rates in the eurozone than in other advanced economies. Non-financials' yields are only marginally off the historical lows of mid-May 2013. We will publish a Special Report in the coming weeks that will provide more detailed analysis of the data. Contact: Monica Insoll Managing Director Credit Market Research +44 20 3530 1060 Fitch Ratings Limited 30 North Colonnade London E14 5GN Roelof Steenekamp Director Corporates +44 20 3530 1374 Simon Kennedy Director Fitch Wire +44 20 3530 1387 Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: peter.fitzpatrick@fitchratings.com. The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings. ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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