Liquidity Charge Lifts EMEA Syndicated Loans

LONDON, July 1 (LPC) – Syndicated loans in Europe, the Middle East and Africa of $471 billion for the first six months of the year were just 4% down on the year previous year, with companies working quickly to raise billions of dollars in short-term loans. long-term liquidity and weathers the immediate storm of Covid-19, according to data from Refinitiv LPC.

Government-mandated shutdowns in the region to limit the spread of the virus have prevented many businesses from operating as normal, with borrowers in particular sectors such as leisure, travel and automotive suffering from severe cash burn during months of near inactivity. The oil and gas sector was the hardest hit by falling demand and low oil prices.

The number of deals fell to 585 in the first half of the year from 811 in the first half of 2019. However, the average deal size increased as quality companies rushed to set up large credit facilities, at the should broader capital markets become inaccessible during the crisis.

Meanwhile, small businesses facing substantial hikes in loan pricing have turned to covenant amendments and waivers to secure their finances.

The biggest deals in the second quarter were additional liquidity facilities, led by a 12 billion euro short-term loan for German automaker Daimler that was agreed in late April with a group of 15 banks.

Earlier in April, oil giant BP secured a two-year, $10 billion credit facility to provide it with additional liquidity headroom during the crisis, while industry peer Total agreed. a short-term loan of $6.35 billion.

In May, Air France-KLM finalized €7 billion in financing guaranteed by the French state, including a €4 billion loan from a syndicate of nine banks, while in June its Dutch subsidiary KLM has concluded a package of state-guaranteed loans of 3.4 billion euros, including a 2.4 billion facility over five years with 11 banks.

Acquisition and refinancing activity, typically the main drivers of loan market volume, has been severely constrained as borrowers focus on survival.

M&A loans fell 30% to $72.5 billion in the first half, from $104 billion in the first half of 2019.

French trainmaker Alstom secured €3.9bn in loans backing its acquisition of Canadian Bombardier Transportation in April, while a £4bn high-grade bridge loan backing the £38bn merger of dollars from the British businesses of Liberty Global and Telefonica closed in May.

With longer-term funding mostly unavailable, refinancing fell to $194 billion in the first half, 42% lower than $337.4 billion a year earlier. Borrowers resorted to extension options or extended existing facilities instead of opting for costly short-term refinancings.

“We have the immediate situation under control but we are not out of the woods yet,” said a senior banker.

“While borrowers are still in survival mode, we are unlikely to see a huge surge in demand for M&A or refinancing. Once back to some semblance of normality, we can refocus on types of activities that we knew before the crisis and continue the transition towards green and sustainable finance.

LEVER CHUTE

First-half volume in the European leveraged loan market was dragged down to $74.59 billion, the lowest level since 2012, as it weathered the fallout from the pandemic.

Second-quarter volume fell 53% to $21.87 billion, from $46.59 billion in the same period last year, according to LPC data.

The data did not take into account a few giant deals, including a €3.565 billion equivalent buyout loan for Thyssenkrupp Elevator, which closed on June 30 and a €1.5 billion buyout loan for the Spanish telecommunications company Masmovil which will close on July 1. .

The European leveraged loan market was all but shut down in April due to the lockdown put in place around the world, prompted by the coronavirus pandemic.

It tentatively reopened in early May with a modification and expansion process by European lab operator Synlab and a $1 billion term loan refinancing by US data analytics firm Nielsen.

It was not until late May that the European leveraged loan market took the first steps since March to reopen to acquisition-related transactions, with the launch of a €775m buyout loan. for the French mortgage broker Financière CEP, followed a week later by a loan of €1.61. Billion in acquisition loan backed by the takeover of the Dutch equipment rental company Boels.

To attract lenders, borrowers had to pay for loans, including higher spreads and wider OIDs, compared to late 2019 and early 2020.

In June, the market regained momentum to launch giant takeover deals, including TKE and Masmovil, which reinvigorated the market and received positive responses.

“It showed that the market has sufficient liquidity to digest trades of more than a billion,” said a leveraged financial banker.

The average price of leveraged European loans in the secondary market also gained ground from May, to over 90% of face value, after falling to less than 80% at the end of March, its lowest level since 2009. .

However, bankers remain cautious about the outlook for the rest of the year.

“There’s a lot of uncertainty there. There could be a second wave of coronavirus infections and a big economic fallout. Plus, the US election is also a key thing to watch,” the financial banker said. leveraged. “It might take a while to get back to pre-Covid status.”

The pandemic hit lending activity in Central and Eastern Europe, the Middle East and Africa, where half-year volume was $61.03 billion, the lowest half-year volume since 2009.

The Middle East saw the biggest drop in volume, down 23% to $27.08 billion from the first half of 2019, as the impact of Covid-19 and the dramatic drop in oil prices held many borrowers and lenders out of the market.

One bright spot was the closing of a much-anticipated one-year $10 billion loan for Saudi Aramco, the world’s largest oil producer. It was first discussed in July 2018 when Aramco announced it was buying a 70% stake in petrochemical maker SABIC, owned by Saudi Arabia’s Public Investment Fund.

Russia also continued to be muted with just $6.8 billion in deals closed in the first half of the year, despite hopes at the start of the year that 2020 would see an increase in deal activity.

BNP Paribas is the uncontrollable leader in the EMEA syndicated loan bookrunner rankings in the first half of the year with a market share of $60.96 billion and 105 transactions. Crédit Agricole is in second place, with $28.12 billion and 84 deals, while Santander is third with $21.64 billion and 63 deals.

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