Europe, Mideast and Africa lending soars to $930bn

Volumes are up but there is a lot more capacity in the market, with excess demand and not enough supply

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Syndicated lending in Europe, the Middle East and Africa (EMEA) rose 32 percent to $930 billion in 2013 from $703 billion in 2012 as borrowers took advantage of improved market conditions to secure better terms on loans.

"The market has been demonstrably healthy in 2013 and there is a lot of confidence for 2014. Volumes are up but there is a lot more capacity in the market, with excess demand and not enough supply. The markets can cope with more M&A and absorb more volume in 2014. The market itself is in robust shape," said a loan syndicate head, who declined to be named.

Refinancing made up nearly 70 percent of total loan volume in 2013 as event-driven acquisition financing remained subdued, according to Thomson Reuters LPC data.

Refinancing volume of $645 billion was 55 percent higher in 2013 as companies took advantage of competition between banks to refinance existing loans early at cheaper pricing and longer maturities.

The wave of early refinancing helped boost the number of deals, with 1,469 loans completed in 2013, a 20 percent increase on 2012 and the highest number since 2007.

Despite decreased market volatility and the willingness of banks to underwrite loans, M&A activity fell to a 14-year low of $100 billion, as high company valuations and doubts over the market recovery put off potential buyers.

Competitive tension

High-grade lending to blue-chip companies rose 29 percent in 2013 to $540 billion, accounting for 58 percent of the market.

Investment grade companies refinanced $423 billion of loans, 61 percent higher than the $262 billion of loans that were refinanced in 2012. M&A lending to top companies sank 32 percent to $44 billion in 2013 from $65 billion in 2011.

The largest corporate loans of the year were a $17.34 billion refinancing for diversified natural resource company Glencore Xstrata, a $14.21 billion loan backing Russian oil company Rosneft's acquisition of a 50 percent stake in TNK-BP; a 10 billion euro ($13.81 billion) loan refinancing for Nestle ; and a 9.4 billion euro forward start facility for Italy's biggest utility Enel.

Pricing for highly-rated companies dropped sharply throughout 2013 due to improved bank liquidity and increased competition between banks to win mandates to access money-spinning ancillary business.

Average margins for single-A rated companies fell to 27.5 basis points (bps) in the fourth quarter of 2013, down from 40 bps level seen at the end of 2012. Pricing for triple B rated companies dropped to 55 bps in the fourth quarter, down from 96 bps seen at the end of 2012.

The squeeze on pricing was also seen in Europe's peripheral economies, such as Spain and Italy, as improving economic conditions across Europe saw some banks expand credit limits.

In November Spain's Iberdrola became the first peripheral borrower to achieve sub-100 bps pricing on its 2 billion euro loan refinancing, which paid 90 bps over EURIBOR.

Leveraged boost

Activity in Europe's leveraged loan market rose 63 percent to $191.5 billion in 2013 from a year earlier. Volume reached the highest level for six years, fuelled by refinancings.

Some 68 percent of leveraged loan volume - totaling $129.4 billion - was for refinancing purposes, compared with $44 billion of M&A financing, according to the data.

The largest pure European leveraged loan of 2013 came in the first quarter, when British broadcast transmission provider Arqiva refinanced 3.1 billion pounds ($5.12 billion) of loans.

Four out of five of the biggest leveraged loans this year were refinancings, including a 2.1 billion pound deal for British motoring services firm AA, and a 2.4 billion euro loan refinancing of German car parts supplier Schaeffler's debt.

The largest leveraged buyout financing was 3.3 billion euros of loans to back German investor Joh A Benckiser's 7.5 billion euro acquisition of Dutch coffee and tea company DE Master Blenders 1753.

A strong pipeline of deals to syndicate in 2014 is building and bankers expect to see more M&A activity, including the potential sales of German packaging group Mauser by Dubai Holding, German skin patch maker LTS Lohmann and Nordic payment services company Nets Holding.

BNP Paribas topped the EMEA syndicated loan bookrunner league table in 2013, with a $48 billion share of the market from 208 deals. Deutsche Bank was second, with $33 billion and 136 deals and Societe Generale was third, with $32 billion and 133 deals.

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