RLPC-Europe's capital markets face tougher 2H tests - A&O
By Tessa Walsh
LONDON, July 14 (Reuters) - Tough European loan markets mean that bond and equity markets will remain busy but the capital markets face more difficult lending decisions in the second half, law firm Allen & Overy said on Tuesday.
The capital markets could rebalance to pre-crisis levels, leading to increased loan volume, but face tougher decisions later this year as weaker companies try to raise funds to refinance debt or other liabilities, Allen & Overy said.
The loan market is showing more signs of life but faces a slow climb out of the downturn. Conditions will stay tough while bank liquidity remains scarce as banks save balance sheet for core clients and otherwise remain preoccupied with internal issues and loan restructuring.
Banks are still unwilling to underwrite new loans without a clear exit route, which is currently being provided by bond issues as banks are unwilling to provide bridge loans to equity issues.
The bond markets will see currently high levels of bank liability management drop and a dramatic increase in new issuance, including high-yield bonds for a wider range of companies, that could give rise to a busy summer.
European companies have raised $50 billion of high-yield bonds since April due to a lack of financing alternatives which could herald a shift to U.S.-style corporate funding for more leveraged companies that would sustain higher high-yield bond volume.
"Companies are leaving no stone unturned in the search for capital," said Daniel Epstein, equity capital markets partner at Allen & Overy.
The equity markets are expected to see similar rates of issuance in a 9-12 month slog back to normality, but could shortly see a greater rate of failure among weaker credits, leading to a greater number of deals being pulled.
Allen & Overy expects equity raising from IPOs for 'recession proof' companies from the oil exploration and technology sectors, along with capital raisings from opportunistic funds seeking to invest in real estate assets or Special Purpose Acquisition Companies.
(Editing by David Cowell)
