October 1, 2018 / 12:15 PM / a year ago

REFILE-EMEA syndicated lending robust at US$680bn this year

(Fixes typo in 13th para.)

By Alasdair Reilly and David Brooke

LONDON, Oct 1 (LPC) - Syndicated lending in Europe, the Middle East and Africa (EMEA) in the first three quarters of 2018 was flat compared with the same period last year, reaching US$680bn, according to LPC data.

Volumes remained robust despite potential trade wars, geopolitical tensions, rising interest rates and the winding down of the ECB’s quantitative easing programme, as well as the possibility of a “no-deal” Brexit.

“The pause button seems to have been pressed ahead of the mid-terms in the US and the lack of progress on Brexit. It was busy in early summer, but banks are now looking for some direction,” a senior banker said.

The number of deals completed in EMEA year-to-date dipped by 11% from the same point in 2017, with 1,042 loans completed.

Loans to Europe’s highest-rated companies totalled US$393bn in the first three quarters, which is 8% higher on the same period in 2017. However, the strong levels of activity seen in the first half dropped to just US$64.4bn in the third quarter as large-scale M&A disappeared and refinancing slowed.

Overall refinancing activity, the traditional driver of EMEA lending, rose nearly 5% to US$445bn in the first three quarters as companies took advantage of deep market liquidity to refinance or amend and extend existing facilities at still competitive rates.

The biggest refinancing of the quarter was a €11bn (US$12.76bn) revolving credit facility German car maker Daimler in July that replaced an existing €9bn credit line on significantly improved terms. A group of more than 40 banks were eager to lend at the higher end of the credit spectrum.

Meanwhile, UK information and analytics provider RELX Group, previously Reed Elsevier, closed a US$3bn refinancing in July, replacing an existing US$2bn back-up revolving credit facility.

M&A lending in the first three quarters totals US$188bn, nearly 6% down on the same period of 2017 as jumbo acquisition financing remained absent. Third quarter M&A activity slumped to just US$26bn.

Strong activity in Italy so far this year has been buoyed by a number of late cycle refinancings and acquisition loans despite the uncertainty that has affected the country since the installation of an EU-sceptic coalition government in June. Italy supplied some of the biggest loans of the third quarter.

In July toll-road operator Atlantia completed a €3bn financing, including a €1.75bn term loan that helped fund its part of part of the joint takeover - with Hochtief - of Spanish toll-road operator Abertis.

State-owned railway company Ferrovie dello Stato Italiane (FS Italiane) signed a €2bn three-year revolving credit facility in July while broadband infrastructure company Open Fiber completed a €3.5bn seven-year project loan in August.

In Central and Eastern Europe, Middle East and Africa, loan volume for the first nine months of 2018 reached US$115.25bn, up 27% from US$90.66bn in the same period last year.

CEEMEA volume was boosted by the US$11bn loan for Saudi Arabia’s sovereign wealth fund Public Investment Fund. The loan, which was agreed with 15 banks, will be used to help fund the kingdom’s economic transformation plans, and follows the postponement of Saudi’s plans to raise US$100bn through the listing of State oil company Saudi Aramco.

In September PIF selected Goldman Sachs to advise on the sale of its 70% stake in petrochemicals firm SABIC to Aramco. That deal could be backed by a financing of up to US$50bn-$70bn. SPONSORS REGAIN UPPER HAND The European leveraged loan market has completed US$157bn of loans in the first nine months of 2018 after US$31bn of loans were signed in the third quarter, including two of the largest buyout loans of the year.

The buyout of Thomson Reuters’ F&R unit Refinitiv was financed with loans totalling US$9.25bn and Akzo Nobel’s specialty chemicals business was backed by US$6.44bn of loans. Both deals had hung over a volatile market since they were underwritten at the start of the year.

The resounding success of both transactions, and the strength of investor demand revealed tilted the balance of power back to private equity firms in late September, reversing investors’ hard-won gains earlier in the summer amid a surge in supply.

Both of the jumbo loans were able to secure tighter pricing during syndication, along with sponsor-friendly covenant packages as strong technical factors overwhelmed any credit concerns. Refinitiv was criticised for its “extremely defective sponsor-style covenants” by credit research firm Covenant Review.

In the summer, several smaller buyout loans struggled as investors pushed back against aggressive terms and documentation and pricing increased.

“You definitely saw a resetting of pricing and there were a lot more in documentation changes that were investor friendly over the summer,” said Fabianna Del Canto, managing director at Barclays.

The strong results of the jumbo loans, however, suggest that this may have been a blip instead of a long-term trend in investors’ favour.

“Now coming back in September things have retraced a bit. We’re not back at the tights, nor is all documentation taken as given, but there is more of a balance. With Akzo and Refinitiv we’re not at the low 300bp mark, nor are we at the 400bp mark either,” Del Canto said.

Second-lien volume rose to US$1.65bn in the third quarter, which is the second highest quarterly volume since the first quarter of 2011, up from US$1.09bn in the second quarter of 2018.

Several buyout loans had to introduce new second lien loans to help deals to clear the market after investors pushed back, in order to make the deals attractive to direct lenders.

French roof tiling business Imerys added a €100m second-lien facility in August after a long syndication and Belgian chemicals distribution group Azelis launched a €1.1bn TLB with €230m pre-placed second-lien facilities in July.

BNP Paribas topped the first half EMEA syndicated loan bookrunner league table with a US$35.15bn market share and 153 deals. JP Morgan claimed second place with US$30.36bn and 56 deals, while Societe Generale was third with a US$29.86bn market share and 109 deals. ($1 = 0.8623 euros)

Editing by Christopher Mangham

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