* First half total up 11 pct year-on-year, bolstered by
* Russian loan market hit by Western sanctions
* Leveraged loans outperformed by buoyant high yield bond
By Alasdair Reilly and Claire Ruckin
LONDON, July 1 Syndicated lending in Europe, the
Middle East and Africa (EMEA) was up 11 percent year-on-year to
$499 billion in the first six months of 2014 bolstered by
refinancing activity and a small increase in merger and
acquisition financing, Thomson Reuters LPC data shows.
Refinancing transactions remained the main driver of lending
activity as the ready availability of cheaply priced credit
facilities encouraged many of Europe's top companies make an
early return to the market to replace existing facilities on
"At the start of the year, people were worried about where
deal flow would come from, but high levels of market competition
saw pricing fall and volumes take-off. There's also been some
fee generation through M&A and pre-IPO financings to keep things
ticking over," a senior banker said.
Second quarter volume of $298 billion was nearly 50 percent
higher than the $201 billion seen in the first quarter, and 39
percent higher than the second quarter of 2013.
Lending in Central and Eastern Europe fell 66 percent to $23
billion in the first half of the year, with Russia recording
volume of just $6.88 billion as Western sanctions, introduced
after Russia's annexation of Crimea, hit Russian loan market
Lending in Africa was down 70 percent in the first half at
$5.53 billion, while lending in the Middle East was 45 percent
down at $17.5 billion.
HIGH GRADE BOOST
Investment-grade lending to Europe's higher rated companies
rose 38 percent in the first half of 2014 to $332 billion, with
high grade M&A loans up 19 percent to $34 billion on last year's
29 billion as a flurry of cross-border pharmaceutical
acquisitions took place.
High grade refinancing volume rocketed 60 percent in the
first half to $275 billion as corporates took advantage of low
loan pricing to return to the market to refinance credit
facilities at low rates or to re-price existing deals through
amend and extend transactions.
Fierce competition between banks to win loan mandates and
gain access to money-spinning ancillary business continued to
keep loan pricing low across Europe's stronger economies.
Average single A pricing in non-peripheral Europe fell to
21.7 bps in the second quarter, down from 28.5 bps in the first
three months. A+/A1 rated global miner BHP Billiton
signed a $6 billion credit facility in May priced at
just 20 bps.
Meanwhile, average triple B pricing in non-peripheral Europe
has remained broadly flat at 76.9 bps in the second quarter from
the 76.2 bps seen in the first quarter. BBB+/Baa1 rated cruise
line operator Carnival closed a $2.6 billion facility in
June priced at 40 bps.
Diversified natural resource company Glencore Xstrata
once again dominated second quarter volume as it
completed a $15.3 billion loan refinancing in June. The deal
replaced Glencore's $12.99 billion, one-year and three-year
revolving credit facilities signed in June 2013 and amended and
extended a $4.35 billion, five-year revolver, also agreed in
June last year.
Meanwhile, German pharmaceuticals giant Bayer
closed a $14.2 billion acquisition loan in June to back its
purchase of US-based Merck's consumer care business. The fully
underwritten loan was split between a $12.2 billion bridge to
capital markets facility and a $2 billion, medium term facility.
German car maker Volkswagen also took advantage
of competitive market conditions to amend and extend an existing
5 billion euro ($6.82 billion) loan in May. Pricing was cut to
25 bps over Euribor from 35 bps previously, while a 5+1+1 year
maturity was refreshed.
First half leveraged loan volume of $90.07 billion was 6.7
percent lower than the first half of 2013 due to a lack of
event-driven deals and a number of repayments as credits opted
to list or tap a hot high-yield bond market.
Leveraged loan volume was outperformed by the buoyant high
yield bond market, where issuance hit $140 billion, the highest
half year total ever recorded in Europe.
The majority of loan volume was used for refinancing
purposes at $80.47 billion, fuelled by a demand/supply imbalance
as cash rich investors agreed to more aggressive terms in a bid
to avoid repayment.
Borrowers grasped the opportunity to improve debt financings
and maximise returns from portfolio companies by repricing and
conducting dividend recapitalisations, despite a number of
credits having already adjusting their debt last year.
Only $9.6 billion of loans were attributable to event-driven
deals, a 26.9 percent reduction compared to the first half of
The two largest leveraged loans of the first half, however,
were the euro portions of dual-currency corporate event driven
The largest was a 2.85 billion euro loan backing French
cable company Numericable's acquisition of Vivendi's
French telecoms firm SFR in the second quarter, followed by a
2.65 billion euro loan backing Dutch operator Ziggo's
acquisition by U.S. cable group Liberty Global, in the
Towards the end of the first half, euro portions of cross
border deals were increasing as the US market softened and
European investors attracted borrowers by offering more US-style
loans by accepting more risky structures such as covenant-lite
and second lien.
An 818 million euro loan backing the buyout of French
veterinary pharmaceutical firm Ceva Sante Animale was Europe's
first 'pure' covenant-lite loan and others followed suit such as
Spanish olive oil bottler Deoleo, which opted for a 600 million
euro, covenant-lite first and second lien structure, after
dropping a dollar tranche.
Bankers have mixed feelings on volume during the second half
as the leveraged pipeline fails to excite beyond a 7.6 billion
euro-equivalent loan for DE Master Blenders that will refinance
debt and help fund a merger of its coffee business with that of
Mondelez. The deal is the largest leveraged loan to be issued by
a European company since the 9 billion pounds ($15.31
billion)buyout financing which backed the buyout of Alliance
Boots by private equity firm KKR in 2008.
"It feels like the market is pointing to a bigger pick up in
M&A activity, whether that comes in the second half of 2014 or
the first half of 2015 is uncertain. There is a lot of activity
and exits through the IPO market which is a positive, as
sponsors show investors they can exit deals and get into buying
mode again," a senior leveraged loan investor said.
The EMEA syndicated loan bookrunner table at the half-way
point sees BNP Paribas lead with a $27 billion share
of the market from 105 deals. Credit Agricole CIB is
second with a $21 billion share of the market from 74 deals,
while HSBC was third with a $17.9 billion market share
from 96 deals.
($1 = 0.7331 Euros)
($1 = 0.5877 British Pounds)
(Editing by Christopher Mangham)