June 28, 2019 / 2:48 PM / 3 months ago

EMEA syndicated loans tumble to 15-year low

LONDON, June 28 (LPC) - Syndicated lending in Europe, the Middle East and Africa (EMEA) of US$367bn for the first six months of the year hit a 15-year low as borrowers continued to avoid tapping the loan market amid global economic uncertainty, LPC data shows.

Volume was 37% lower in the first half of 2019 than US$586bn a year earlier, and the number of deals slumped to 549 from 878 last year as appetite for borrowing continued to be hit by the late credit cycle economic slowdown and tensions in global trade.

Falling volume has put banks’ budget targets under pressure and lenders are not expected to be able to close the gap in what is already being viewed as a difficult year.

“It’s fair to say it has not been a headline-grabbing year so far thanks to a mixture of cyclical and technical factors,” a senior banker said.

M&A lending slumped 52% to US$78.6bn in the first half, down from US$162.5bn in the first half of 2018, as large-scale M&A deals remained thin on the ground.

German drugs and lab supplies maker Merck KGaA syndicated a US$6.3bn-equivalent financing in April to back a hostile US$5.9bn bid for US-based Versum Materials. The dual-currency bridge and term loan was the largest acquisition-related loan of the second quarter.

French advertising agency Publicis closed syndication of a bridge loan and term loan in May backing its US$4.4bn acquisition of US-based data marketing platform company Epsilon.

Swiss eye care devices company Alcon also syndicated a US$4.2bn-equivalent loan in April to provide financing following its spin-off from pharma giant Novartis .

“With the political and economic situation as it is, don’t expect a huge explosion of back to business M&A. But there will come a point when companies will have to say to themselves, “we can’t just sit on our hands anymore,” the banker said.

German auto supplier ZF Friedrichshafen, German chip maker Infineon Technologies, French IT services group Capgemini and French modelling and simulation software company Dassault Systemes have all lined up jumbo financings to back acquisitions.

The drop-off in refinancing volume was less marked, as many companies have already refinanced existing loans in the last few years.

Refinancing fell to US$269.4bn in the first half, 30% lower than US$386.3bn a year earlier as a continuing supply of amend and extend loans, and the conversion of existing facilities into sustainability-linked loans helped to keep volume slowly ticking over.

German utility RWE signed a €5bn (US$5.69bn) revolving credit facility in April, which renewed and increased an existing €3bn facility. The financing closed oversubscribed with a group of 27 international banks.

Meanwhile Norwegian oil exploration and production firm Aker BP closed a US$4bn unsecured revolving credit facility in May that refinanced an existing US$4bn secured reserve-based lending (RBL) facility.

Plunging loan volume was also reflected in Central and Eastern Europe, the Middle East and Africa (CEEMEA) where first half syndicated lending hit its lowest level since 2009 at US$52.25bn, roughly half the US$104.8bn seen in the first six months of 2018.

SEVEN-YEAR LOW

European leveraged loan volume fell to a seven-year low in the first six months of the year as fears of an economic slowdown, volatile equity markets and lingering trade tensions continued to take a toll.

First half volume of US$72.99bn was 42.5% lower than a year ago, and second quarter volume of US$33.28bn was 16.1% lower than first quarter volume of US$39.7bn.

Loans continued to be favoured by private equity sponsors seeking additional flexibility and issuance outstripped high-yield bond volume of US$39.3bn in the first half.

Bankers became more optimistic as activity rose in the second quarter and the leveraged loan pipeline refilled, but the post-summer outlook is less positive and investors remain wary of cyclical businesses.

“The pipeline visibility remains low, and I don’t see anything beyond September,” a syndicated loan head said.

The lack of jumbo M&A deals and loan repricing continues to restrict the supply of leveraged loans.

“Fewer jumbo deals at the moment than last year has affected loan supply this year and we haven’t seen a huge wave of repricing yet,” a leveraged finance head said.

One jumbo financing is scheduled to launch in the first week of July - a SFr5.4bn-equivalent loan backing EQT Partners and Abu Dhabi-based ADIA’s SFr10.2bn (US$10.4bn) buyout of Nestle’s Skin Health business.

Despite the lack of longer-term pipeline opportunities, bankers are expecting a busy summer as several public-to-private buyouts reach the market.

Potential sizeable deals include the £5.91bn acquisition of UK theme park operator Merlin Entertainments; the £1.91bn buyout of car auctioneer BCA Marketplace; the US$3.7bn acquisition of US auction house Sotheby’s and KKR’s €6.8bn offer for German publisher Axel Springer .

“Volatile equity markets allow a number of sponsors to go for P2P (public-to private) deals. We have seen more P2P deals in the pipeline,” the leveraged finance head said.

Credit Agricole CIB leads the first half EMEA syndicated loan bookrunner league table with a US$24.73bn market share and 90 deals. BNP Paribas is in second place with US$21.83bn and 84 deals, while Bank of America Merrill Lynch is third with US$20.05bn and 41 deals. ($1 = 0.8789 euros)

Editing by Tessa Walsh

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