* Company demand for syndicated loans still patchy
* Banks hunt yield in emerging markets, periphery
* Leveraged lending dominated by refinancing and repricing
* French banks return to top of loan league table
By Alasdair Reilly and Claire Ruckin
LONDON, March 28 (Reuters) - Syndicated lending in Europe, the Middle East and Africa (EMEA) rose 13 percent to $185 billion in the first quarter of 2013 compared to the first three months of 2012 as borrowers took advantage of banks’ renewed appetite to lend.
The European syndicated loan market returned to health in early 2013 with strong liquidity after aggressive deleveraging in 2011 and 2012 boosted banks’ capital and helped them to comply with new regulations.
Banks are liquid and willing to lend, but demand from borrowers remains patchy as the eurozone crisis continues to weigh on companies’ confidence and sentiment.
“It’s a very mixed picture. Apart from a few large deals, the investment grade market is very quiet. The leveraged market is looking very busy and there is also a lot happening in the emerging markets,” a senior banker said.
Although first quarter volume is healthy compared to the same period of 2012, the EMEA loan market had the lowest number of deals since late 2008 with only 210 deals completed in the first quarter.
Average deal sizes however topped $880 million, up from the average $575 million in 2012, as several highly-rated companies returned to the market to refinance large loans, Thomson Reuters LPC data shows.
The market saw increased activity in the peripheral economies of Spain and Italy, as well as in the emerging markets as banks looked for yield in riskier markets, bankers said.
Italy and Spain saw volumes of $20 billion and $14 billion respectively in the first quarter as top companies such as Enel , Telecom Italia and Telefonica took the opportunity to refinance and extend credit lines.
Loan volume in Central and Eastern Europe, including Russia, was up 194 percent to $20.73 billion in 1Q13 compared to the same time last year. Russian volume made up over $17 billion of the total.
High grade lending to blue-chip companies increased 15 percent to $126 billion in the first quarter, compared to $97 billion a year earlier as the loan market regained ground against the corporate bond market.
Corporate loan volume exceeded corporate bond issuance in the first quarter, when $104 billion of corporate bonds were issued. This was a reversal from the fourth quarter of 2012, when $107 billion of corporate bonds were issued, compared to only $67.13 billion of corporate loans.
Refinancing continued to dominate high grade lending as top companies were able to secure better terms as bank liquidity and appetite improved. Nearly $85 billion of refinancing loans were raised in the first quarter, although the number of deals completed decreased to 75 from 109 in the same period.
The largest refinancing of the first quarter was Italian utility Enel’s 9.4 billion euro ($12.01 billion)forward start loan which will replace an existing 10 billion euro syndicated loan when it matures in April 2015.
French power and transport group Alstom also completed a 9 billion euro refinancing of a guarantee facility.
Only $26.6 billion of investment grade M&A loans were completed in the first quarter as acquisition activity remained low despite relatively benign markets and a robust corporate bond market.
A $14.2 billion loan backing Russian oil major Rosneft’s acquisition of a 50 percent stake in TNK-BP from the AAR consortium was the largest syndicated loan of the first quarter.
The loan followed an earlier $16.8 billion loan backing the acquisition of BP’s half of TNK-BP, which was signed at the end of 2012.
Loan pricing came under increasing pressure as competition re-emerged between banks, which allowed borrowers to access better terms, especially in the European power house economy of Germany.
Average undrawn margins for single A rated companies fell 11.25 basis points (bps) to 28.75 bps in the first quarter while pricing for BBB-rated companies saw a 16.11 bps reduction to 80 bps from the 96.11 bps seen in the 4Q12.
First quarter leveraged loan volume of $30.2 billion was 19 percent lower than a year earlier due to a lack of new buyout activity, which at $3.6 billion was 47 percent lower than the same period of 2012.
Leveraged loan volume was outstripped by a more active high-yield bond market where first quarter issuance hit an all time high of $45.5 billion.
Most leveraged lending was attributed to refinancings, repricings and amendments and extensions of existing debt.
The largest leveraged loan of the first quarter was the $4.9 billion refinancing of British broadcast transmission provider Arqiva, which refinanced its 2007 loans.
The refinancing included senior loan facilities provided by a club of 20 lenders and a bridge loan to bond issues.
The second largest leveraged loan was the $3.4 billion refinancing, amendment and extension of Danish outsourcing firm ISS’s debt pile to pave the way for a potential IPO. ISS raised new senior debt to refinance an expensive second lien loan and extended the maturity of existing debt.
Companies took advantage of positive market conditions and good liquidity to reprice existing loans as new buyouts remained in short supply.
Energy analysis group Wood Mackenzie and UK frozen foods retailer Iceland Foods repriced 2012 buyout loans to obtain more favourable terms and cut interest margins on the debt.
Other notable leveraged loans of the first quarter included the $4.7 billion debt financing backing Liberty Global’s acquisition of Virgin Media which included a $1.9 billion sterling tranche as well as buyout loans for credits including Dutch medical supplier Mediq and British discount retailer B&M.
The pipeline of new buyouts for the second quarter is looking strong and will require around $20.8 billion of new buyout financing financing if all the auctions succeed.
This level of activity would surpass the $17.25 billion of new buyout financing which was completed in 2012.
“This quarter has seen a lot of investor demand and sponsors wanting to do M&A. Not much has happened yet, but it should come in 2Q. In the meantime, sponsors have taken advantage of strong credit markets to refinance, reprice and amend and extend their debt,” a leveraged loan banker said.
French banks returned to the top of the EMEA syndicated loan bookrunner table in the first quarter of 2013, led by Credit Agricole CIB with a $11.6 billion share of the market from 21 deals.
BNP Paribas was second with a $10.3 billion market share from 37 deals and Societe Generale was third with a $9.3 billion market share from 27 deals. ($1 = 0.7824 euros) (Editing Tessa Walsh)