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* Lack of demand for loans takes its toll
* Second quarter volume down 42 pct on last year
* Leveraged loans increase 22 pct y-o-y
By Alasdair Reilly and Claire Ruckin
LONDON, June 28 Syndicated lending in Europe,
the Middle East and Africa (EMEA) was broadly flat, down 1
percent year on year to $386 billion in the first six months of
2013, as borrower demand remained subdued amid volatile markets,
Thomson Reuters LPC data shows.
With merger and acquisition (M&A) financings remaining
scarce and demand for refinancing subdued, volume and deal flow
remained muted, leaving banks under lent and desperate to book
business in the second half of the year.
"Deal flow is a bit thin and we'd all like to see a bit
more, but it is all part of the normal cycle, refinancing
reached its peak in 2011 and there hasn't been much M&A, despite
excellent market conditions," a senior banker said. "Banks are
very liquid, mostly well capitalised, and remain very willing to
underwrite any M&A transactions, should they arise."
Second quarter volume of $168 billion was 23 percent lower
than the $217 billion seen in the first quarter, and 42 percent
lower than the second quarter of 2012.
Loan volume in Western Europe fell 33 percent to $116
billion in the second quarter compared to the first three months
of the year. Lending in Central and Eastern Europe rose 25
percent to $33 billion in the second quarter, mainly thanks to a
surge in activity in Russia and Turkey.
Investment-grade lending to Europe's higher rated companies
fell 6 percent in the first half of 2013 to $231 billion, while
first half high-grade M&A loans were down 7 percent to $28
billion on last year's $30 billion as many companies remained
wary of backing acquisitions with new debt in volatile markets,
preferring to fund deals through existing cash and credit
Meanwhile, investment-grade refinancing volume was down 7.5
percent in the first half.
The lack of deals has led to increased pressure on pricing
as competition between banks to win loan business hots up in
Europe's strongest economies, especially in Germany, where banks
have been actively increasing their presence.
Single A rated German chemicals company BASF
secured a 25 bps margin on its 3 billion euro ($3.90
billion)refinancing, which is the lowest pricing for a European
deal so far this year.
Average triple B pricing has continued to be squeezed
reducing to 66 bps in the second quarter from the 80 bps seen in
the first quarter, as borrowers took advantage of the
competitive market to lock in future liquidity at lower costs.
Lower pricing could encourage other borrowers to refinance
early, banking sources said.
"There's a window of opportunity to get something done.
Borrowers are looking ahead at 2014 and 2015 maturities to
refinance while conditions remain good," another banker said.
Diversified natural resource company Glencore Xstrata
dominated second quarter volume with its mammoth $17.34
billion loan refinancing, which was used to replace existing
credit facilities at both Glencore and Xstrata. The deal
garnered support from 80 banks in syndication as lenders piled
into the deal to cement relationships with the newly merge
The deal was the largest corporate refinancing seen in
Europe since 2006.
Glencore was also involved in the second largest loan in the
second quarter, a $8.32 billion financing for a joint venture of
Glencore and Vitol backing the purchase of crude oil from
Russia's Rosneft. The prepayment facility helped
Rosneft fund its acquisition of TNK-BP, a deal which had already
been backed with $31 billion of loans.
First half leveraged loan volume of $74.64 billion was 22
percent higher than the first half of 2012.
The majority was used for refinancing purposes at $64.18
billion, as borrowers sought to refinance 2006-07 deals or
conduct dividend recapitalisations. M&A-related deals only
accounted for $10.46 billion, as buyers and sellers failed to
meet price expectations.
"The theme throughout the year is that the leveraged loan
market has been driven by refinancings to deal with a number of
2006-7 vintage deals. The lack of M&A has been disappointing as
the debt financing is there to do them but there is still a
misalignment between buyer and seller expectations, which led to
a number of aggressive dividend recapitalisations instead," a
leveraged banker said.
The largest leveraged loan of the quarter was the 3.3
billion euro loan backing German investor Joh A Benckiser's
(JAB) 7.5 billion euro acquisition of Dutch coffee and tea
company D.E Master Blenders 1753.
The largest sponsor backed buyout loan of the quarter was
the 2.3 billion euro loan backing CVC's purchase of German
metering firm Ista International.
The leveraged pipeline is growing with a number of
financings set to be launched for syndication in the third
quarter, including publisher Springer Science+Business Media;
industrial ceramics firm CeramTec; global manufacturer Gardner
Denver; and global IT operations management software provider
Leveraged loan bankers have been fighting to persuade
European borrowers to tap the European market this year as many,
including livestock tracking device manufacturer Allflex, have
opted to go to the US for their financing needs, attracted by
higher leverage and cheaper pricing. However, the recent wider
market volatility in the credit markets could slow the migration
during the third quarter.
French banks continued to dominate the EMEA syndicated loan
bookrunner table in the first half of 2013, led by BNP Paribas
with an $18.5 billion share of the market from 83
deals. Credit Agricole CIB is second with a $13.9
billion share of the market from 38 deals, while Societe
Generale was a close third with a $13.67.3 billion
market share from 51 deals.
($1 = 0.7691 euros)
(Editing by Christopher Mangham)