December 30, 2011 / 5:15 PM / 6 years ago

RLPC-EMEA syndicated loans hit 4-year high

* EMEA syndicated lending climbs despite eurozone crisis

* Activity slows in fourth quarter as deleveraging increases

* Refinancing dominates as companies anticipate price rises

By Tessa Walsh

LONDON, Dec 30 (Reuters) - Syndicated loans to companies in Europe, the Middle East and Africa (EMEA) this year topped $1 trillion for the first time since 2007, rising 14 percent to $1.034 trillion despite the deepening eurozone crisis, according to Thomson Reuters data.

But the market started to slow in the fourth quarter, when loan volume of $249.6 billion was 12 percent lower than the same period of last year.

After severe market volatility in August linked to the euro zone debt crisis, banks began aggressive deleveraging programmes and started to reduce lending and sell loan portfolios to conserve scarce capital.

This was a marked difference from the first half of the year when loan pricing continue to fall despite regulatory concerns and rising bank funding costs.

“Until the summer, pricing continued to tighten and every deal was well supported. After that all the issues the market was facing came into sharper focus, funding costs rose and banks had to change their behaviour,” said Sean Malone, head of loan market and conduit origination at Royal Bank of Scotland.

Lending was unevenly distributed around the EMEA (Europe, Middle East and Africa) region as the market retreated from risk and banks pulled back to home markets and prioritised lending to domestic companies.

Western European companies borrowed 15 percent more in 2011. France was the biggest market with $207 billion of volume, followed by the UK at $173 billion and Germany at $113.6 billion.

Lending to the Middle East slumped 29 percent to $37 billion and lending to Africa fell 18.5 percent to $23.8 billion. Eastern European companies however borrowed 42 percent more at $97.5 billion.

Financial services was the most active sector in the EMEA region with $100.6 billion of loans, followed by utilities at $98 billion.


The EMEA syndicated loan market was dominated by corporate refinancing as market volatility discouraged mergers and acquisitions (M&A) activity and lending.

Companies focused instead on refinancing $753 billion of loans in 2011 - 28 percent more than 2010 - in anticipation of deteriorating market conditions.

Refinancing drove nearly three-quarters of all EMEA volume while M&A accounted for only 11 percent of regional lending. M&A lending dipped three percent to $114.3 billion from a year earlier although activity increased in the second half of the year.

Nearly two thirds of all M&A borrowing was by highly-rated companies as the leveraged loan market slowed in the second half. SABMiller’s $12.5 billion loan, which funded its acquisition of Foster’s was the largest corporate loan of 2011.

Lending to blue-chip companies climbed 16 percent to $692 billion from 2010 -- nearly five times higher than corporate bond issuance of $139.3 billion, according to Thomson Reuters SDC.

Nearly three-quarters of loans to highly-rated borrowers ($565.6 billion) refinanced existing debt, although some companies including France’s Vivendi had to accept higher pricing in the second half of the year.

Average undrawn margins for BBB-rated companies rose to 83.3 basis points (b.p.) from 64.76 b.p. in 3Q. Undrawn margins for single A rated companies rose to 40.5 b.p. from 39.5 b.p. in the same period.


Leveraged lending jumped 49 percent to $140 billion as riskier, more indebted leveraged companies focused on amending and extending existing loans and refinancing them in the high-yield bond market when possible.

European leveraged lending of $140 billion was nearly double $72.8 billion of high-yield bonds issued before August’s volatility effectively closed that market, SDC data shows.

Borrowing by private equity firms more than doubled to $88.72 billion from $43.25 billion in 2010, boosted by a sharp rise in new buyouts to $44.5 billion from $25.5 billion in 2010.

The biggest new buyout of the year was the $4.3 billion loan backing the buyout of Polish mobile phone firm Polkomtel by Polish media tycoon Zygmunt Solorz-Zak.

Many of the new buyouts were however caught in a market correction after August’s volatility and sliding secondary prices meant that the loans had to be discounted to sell.

LPC’s index of Europe’s top 40 leveraged loans closed the year at 90.88 percent of face value, up from a low of 88.85 in early October.

BNP Paribas topped the EMEA bookrunner table for the third year in a row with volume of $65.1 billion 266 deals, followed by Credit Agricole with $48.9 billion in 169 deals.

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