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June 27 (The following statement was released by the rating agency)
Syndicated loans to European corporates have rebounded strongly after weak activity in 1Q14, Fitch Ratings says, partly driven by a rise in merger and acquisition activity.
One of the largest loans in recent months was Bayer's (A-/Negative) EUR9bn 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. This 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. BHP Billiton (BBB+/ Stable) refinanced a EUR4.3bn equivalent five-year syndicated loan two years early to take advantage of cheap pricing,
New 2Q14 loans reached EUR170bn at 24 June, according to data from Dealogic. This is a rise of 59% on the previous quarter and a 33% increase on 2Q13. There were 16 deals of EUR2bn equivalent or more.
European syndicated loan volumes have been EUR100bn-200bn a quarter since the financial crisis. In 1Q14 new loans fell 33% from a year earlier to EUR107bn - the lowest amount in any quarter since early 2012 and less than a quarter of the EUR456bn peak in 2Q07.
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 EUR190bn in 1Q09 and has moved in a band of EUR50bn-150bn a quarter since then. Issuance to date in 2Q14 was EUR95bn.
Although quarterly issuance is highly volatile, total new debt issuance (bonds and loans) has stayed within a relatively narrow band of EUR200bn-300bn a quarter since the crisis, after a EUR547bn peak in 2Q07 that was mainly driven by the lending boom, although bond issuance also rose to a historical high of EUR 91bn at that time. Total corporate debt raising (bonds and loans) has been EUR265bn to date in 2Q14, up 6% on 2Q13.
We will publish our in-depth annual Special Report on corporate funding disintermediation in the coming weeks, providing a more detailed analysis of the data.