LONDON, July 2 (LPC) - First half syndicated lending in Europe, the Middle East and Africa (EMEA) of US$478bn was down 4% compared to the first six months of 2017, according to Thomson Reuters LPC data, as borrowing remained steady in the face of global economic and political uncertainties.
Wider factors including a more protectionist US, painfully slow progress over Brexit, and the impending end of the European Central Bank’s quantitative easing programme has not dented borrower appetite. Meanwhile banks remain underlent and eager to do deals.
“It’s been a relatively healthy first half, volumes are okay. There is pressure on the banks — if you were involved in the three or four big deals out there then you were relatively busy, but if you missed out on them all you were worryingly quiet,” a senior banker said.
Refinancing, the main driver of activity in EMEA, had volume of US$330bn in the first half, making up almost 70% of loan volume. This was 5% higher than a year earlier as companies continue to take advantage of high levels of market liquidity and continuing low interest rates to refinance or amend and extend existing loans.
The largest refinancing of the second quarter was Italian insurance provider Generali, which signed a €4bn (US$4.64bn) loan in May, incorporating sustainable and Green features.
Also in May, South African pharmaceuticals company Aspen closed €3.4bn-equivalent of loans, replacing an existing €3bn-equivalent loan originally agreed in June 2016, while French carmaker Peugeot amended and extended a €3bn syndicated credit on improved terms.
M&A financing in the first half remained stable and in line with last year, just US$2.5bn down at US$150bn. However, a relative absence of big cross-border acquisitions coming out of Europe hit volume.
Second quarter M&A volume was dominated by ACS majority-owned German builder Hochtief’s €18.183bn loan financing backing its joint takeover, with Italian transport infrastructure company Atlantia, of Spanish toll-road operator Abertis that completed in April.
UK industrial turnaround specialist Melrose closed a £4.5bn-equivalent (US$5.89bn) loan in April to back its £8.1bn takeover of engineering firm GKN.
Meanwhile, German utility E.ON completed a €5bn loan in June to back its takeover of a stake in energy group Innogy.
The increase in refinancing and stable M&A volumes saw lending to Europe’s high-grade companies increase 9% at the half year point to US$298bn.
Lending to borrowers in Central and Eastern Europe, Middle East and Africa totalled US$71.55bn in the first half, up from US$63.24bn in the same period last year. However, in the Middle East, borrowing activity was very subdued in the second quarter and loan volume reached just US$4.4bn - its lowest three-month total since the second quarter of 2004.
Leveraged loan volume of US$111.94bn for the first half of 2018 is down 21.2% on the same period last year as refinancing activity dropped notably from the bumper levels seen a year ago.
Non-LBO related issuance fell to US$86.01bn for the first half of the year, almost a third lower than the US$123.07bn than in the first half of 2017. This includes all refinancing, recap and leveraged corporate related issuance.
However, leveraged buyout related issuance has increased to US$25.93bn in the first six months from US$19.06bn in the same period of 2017.
“It’s been very busy in both the sponsor and the corporate space,” said Nick Atkinson, head of leveraged finance EMEA at MUFG. “The biggest change this year has been the flip from refinancing to new deals. Pricing has widened a little in the last month or so but I don’t see that liquidity going away.”
While the headline issuance figure is down this year, it is largely attributable to the drop off in refinancing activity from last year; the US$96.28bn of refinancing done in the first half of 2017 was the largest since 2007.
“With QE drawing to a close, pricing has started to rise,” said Jeff Bennett, head of leveraged corporate origination EMEA at MUFG. “As the market’s been at all-time lows for a long time, it is more a case of returning to more ‘normal’ levels.”
Dividend recapitalisations have also dried up this year. Only some US$602m was issued in the first half of the year, down 87% from the US$4.6bn issued during the first half of 2017.
“Dividend recaps have become trickier,” said a global co-head of leveraged finance at a bank in London. “We’re definitely past the peak of the debt market.”
There have been several large-scale leveraged buyouts. The Macquarie-led take-private of Danish telecoms group TDC was backed by a €3.9bn-equivalent buyout term loan B package. The €2.7bn portion was the largest single tranche term loan B to hit the European market since the crisis.
Selldown of the jumbo US$13.5bn loan and bond financing backing Blackstone Group’s US$20bn acquisition of a 55% stake in Thomson Reuters’ Financial and Risk unit is under way.
A US$8bn-equivalent term loan B is being shown to large institutional investors before an expected September launch, and a US$5.5bn bridge loan to high-yield bond issues was also launched at the end of June.
Blackstone is buying a 55% stake in F&R, which includes LPC.
The deal pipeline is looking strong, as Carlyle’s €10bn carve-out of Akzo Nobel’s chemicals division still to come to the market. Banks have lined up as much as €7.3bn-equivalent of debt to back the buyout.
JP Morgan topped the first half EMEA syndicated loan bookrunner league table with a US$27.38bn market share and 42 deals. BNP Paribas claimed second place with US$26.27bn and 104 deals, while Credit Agricole CIB was third with a US$21.34n market share and 100 deals. ($1 = 0.8621 euros) ($1 = 0.7635 pounds) (Editing by Christopher Mangham)