* Loans: Margins widen, deals stall as risk aversion hits
By Mariko Ishikawa
SYDNEY, April 29 (LPC) - Australian companies are paying more for syndicated loans as banks face pressure on their own cost of funding, reversing a downward trend that had pushed pricing to a five-year low in 2019.
Many borrowers have moved quickly to shore up their balance sheets with short-term credit lines, refinancings and maturity extensions through bilateral and club deals. Those that have braved volatile market conditions with syndicated deals have encountered higher funding costs. This effect has been more pronounced for riskier credits as lenders preserve capital for top-tier borrowers.
“We can expect to see a flight to quality, where lenders focus their balance sheet on core relationship clients,” said Andrew Ashman, head of loan syndicate for Asia Pacific at Barclays in Singapore. “Many corporates are drawing down their standby revolving facilities to boost their liquidity position. This could impact liquidity available in the loan market and may lead to price inflation.”
Australian companies that are now offering higher interest margins on new financings include Qantas Airways, Macquarie Group, Vodafone Hutchison Australia, TPG Telecom, Vocus Group and AirTrunk.
Qantas is syndicating a 10-year secured loan of at least A$300m (US$194m) with an interest margin of 225bp over the bank bill swap bid rate (BBSY). The deal follows a A$1.05bn loan of up to 10 years closed in March, which pays an interest rate of 2.75%. The airline’s previous asset-backed loan was in October 2018, when it raised A$450m through a 10-year financing with margins of 145bp–175bp over BBSY.
Meanwhile, pricing for a A$5.25bn loan to finance the merger of Vodafone Hutchison Australia and TPG Telecom was sweetened by 65bp for each of the three tranches just days before a mid-April deadline for commitments. The A$15bn merger was first announced in August 2018 but blocked in May 2019 by the Australian Competition and Consumer Commission and later revived.
The borrowers revised interest margins on the three and five-year tranches to 190bp and 210bp over BBSY based on a net debt-to-Ebitda ratio of 2.5x–3.0x. Launched in mid-March, the loan originally offered margins of 125bp and 145bp over BBSY, which was already richer than the 110bp and 130bp initial margins the two companies had offered for the same three and five-year tenors on a A$4.75bn financing that closed last January.
The cost of borrowing for Vocus has also risen as it returns to the market after two years. Vodafone’s smaller rival is offering initial margins of 290bp, 310bp and 330bp on its latest A$1.4bn-equivalent loan with 2.25, 3.25 and 4.25-year tenors, based on net leverage of 2.75x–3.0x. That compares with initial margins of 200bp, 215bp and 230bp for the same tenors with a A$1.42bn-equivalent loan that was completed in July 2018 and tied to leverage of 2.5x–3.0x at the time.
Data centre operator AirTrunk has also increased the pricing on a multi-currency five-year term loan B of around A$1.6bn, raising the margin by 75bp to 450bp. Meanwhile, Macquarie closed a debut five-year Ninja loan in April at a reduced size of US$300m and with increased pricing of 120bp over Libor. When the deal was launched in early March, the original size was US$400m with pricing of 100bp over Libor.
The recent trend for pricier loans stands in stark contrast with 2019, when interest margins on five-year syndicated loans for investment-grade credits in Australia averaged 117.50bp, the lowest since 2014, according to Refinitiv LPC data. The average for three-year syndicated loans also dropped to the lowest in five years in 2019.
With market conditions showing few signs of a swift recovery, some borrowers have postponed their fundraisings.
“What tends to happen in Australia during times of crisis is the primary pipeline grinds to a halt and syndication that had been in the pipeline almost becomes stale and hard to move. That’s what we’re finding now.” said Bob Sahota, managing director and chief investment officer at Revolution Asset Management, which invests in leveraged loans in Australia and New Zealand.
France’s Total and Japan’s Inpex have put on hold a proposed refinancing and repricing of loans for the Ichthys Liquefied Natural Gas project in Western Australia. Some lenders found the price talk of 140bp over Libor for the 8.5-year commercial tranche loan too tight under current market conditions.
Indonesia’s Adaro Energy and Australian private equity firm EMR Capital are also putting on hold a refinancing effort for US$1.69bn of acquisition loans for the Kestrel coal mine in central Queensland, which would have included bonds and loans.
Retail property group Vicinity Centres and the Australian unit of Spanish conglomerate Acciona have also suspended syndication of their loans.
Not all companies have time on their side, though. According to Refinitiv LPC data, Australian companies have US$59.6bn of loans maturing this year. At the same time, banks face a US$600bn increase in Asia Pacific non-performing loans in 2020, according to an S&P report published on April 6. (Reporting By Mariko Ishikawa; Editing by Prakash Chakravarti and Steve Garton)