Nov 30 - Investor demand for debt from non-financial issuers has enabled EMEA and US
corporates to issue new debt at more than double the rate of maturities so far in 2012, while
pulling the cost of funding for some to record lows, Fitch Ratings says. The figures highlight
the disintermediation trend in Europe and the perceived safe-haven status of these sectors
compared with the EMEA financial sector, where issuance slowed. Nevertheless, EMEA financials
issuance is still only marginally below the rate at which debt is maturing.
Our research shows that new bond volume from EMEA non-financial issuers in the first nine
months of the year rose 81% compared with the same period in 2011. In aggregate the sector
issued bonds at 2x the rate of 2012 maturities, tempted by levels of demand that have pushed
median fixed-rate coupons to record lows for all rating categories above 'B'. US issuers -
further removed from the European crisis - have been even more active. Issuance from financials
through the first nine months exceeded scheduled bond maturities by a ratio of 1.1 to 1 and for
non-financial issuers the ratio was 3.9 to 1.
While corporate issuance has rallied sharply and the strongest issuers have ready access to
further funding, we do not expect European corporates to abandon the cautious stance on spending
they maintained throughout the downturn.
The increase in issuance partly reflects continued funding disintermediation as corporates
tap markets directly to replace banks loans. EMEA total loan issuance in the first nine months
of the year was EUR403.1m against EUR777.5m for 2011 as a whole. Capex and dividends have also
returned to healthy levels but M&A spending remains low and companies launching share buybacks
typically have strong credit profiles and stable cash flows. In the US, non-investment-grade
corporates have used the strong demand to push out maturities, while investment-grade companies
have significantly lowered their interest costs.
Among EMEA financial issuers, lower investor demand for senior unsecured debt has
contributed to falling issuance volumes. Senior unsecured volumes were down 15% to EUR243bn in
the first nine months of the year, but issuers had still replaced 71% of total 2012 maturities
by the end of September and issuance has picked up recently. Deleveraging and disintermediation
are also reducing the amount of maturing debt that European banks need to replace, while central
bank support, including the European Central Bank's LTROs around the start of the year, have
reduced funding pressures.
More data on rating and issuance trends are available in two quarterly reports published
this month on the US and EMEA by Fitch's Credit Market Research team.