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* First half total up 11 pct year-on-year, bolstered by refinancing
* Russian loan market hit by Western sanctions
* Leveraged loans outperformed by buoyant high yield bond market (Adds details)
By Alasdair Reilly and Claire Ruckin
LONDON, July 1 (Reuters) - 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 better terms.
"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 activity hard.
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.
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 2013.
The two largest leveraged loans of the first half, however, were the euro portions of dual-currency corporate event driven financings.
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 first quarter.
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)