A brake on “jumbo” loans to businesses, Financing growth

European banks lower the curtain. As a result of the war in Ukraine, syndicated loans – these “jumbo” loans granted to companies and which banks share with several – collapsed by 52% in the first quarter in Europe, to 115 billion dollars, a lowest since 20 years in a first quarter, according to figures published by Refinitiv.

“The war in Ukraine has created volatility in the markets and the banks are more wait-and-seeexplains Paul Gibbs, co-head of financing operations in Europe, Middle East and Africa (EMEA) at Citi. Riskier debt issues (high yield) are difficult; issuers prefer to postpone their operation when they can; the boards of directors are cautious about M&A operations. But refinancing on the more secure segment (“investment grade”) can still continue”.

Apart from Spain, all European countries were affected by this air pocket, with declines of between 81% for the United Kingdom, 51% for France and 64% for Germany.

Redoubling attention to sanctions

The United States is not immune. Eight of the ten largest syndicated loans signed in the world this quarter have certainly been concluded across the Atlantic, like the takeover with leverage (LBO) of MacAfee for more than 10 billion dollars. But the banks have less appetite. Some 523 billion dollars in syndicated loans were granted, a figure down 30% over one year.

In Europe, “there was a contagion effect. The few Russian export financing files in the market have been de facto cancelled. In general, the Eastern Europe and emerging countries zone was less active over the quarter”, notes Laurent Vignon, head of syndicated loans in EMEA at Societe Generale.

Added to this was a redoubling of attention to sanctions. ” The banks are taking more time to analyze funding compliance and documentation terms,” Paul Gibbs points out.

No alarmism, however according to Laurent Vignon. “In the segment of the most secure financing, the decline was much less steep, unlike that of LBO loans, which were almost closed,” he said. And after the extremely active year of 2021, we were anticipating a stability in volumes rather than an increase. »

Optimism for the future

Even in the high-yield loan segment, fears must be tempered, according to Patrice Maffre, global head of funds and European head of financing and solutions at Nomura. “If there has been a halt since the end of February, there is no need to worry,” he said. The value of loans on the secondary market has deteriorated very little”. On resale, it indeed reached 97% of the face value on average, against 60% during the 2008 crisis and 80% during that of the Covid in 2020, he notes. In addition, private debt funds remain very active.

Barring further escalation in the war, bankers are optimistic and expect a recovery after Easter. “We can anticipate a catch-up with a resumption of transactions in the second quarter”, according to Paul Gibbs.

For Paul Vignon, it could even be a “strong rebound” as after the confinement linked to the Covid. Admittedly, the syndicated loans of companies highly exposed to the rise in raw materials and energy costs will remain difficult to finance, but certain files opened and then closed before the war are being re-examined, he affirms.

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