After the June downgrade, lenders expected that margins on bank loans would widen. Indeed, the borrowers’ loans had widened in autumn last year, following the August currency crisis in Turkey, provoked by a geopolitical spat with the US that saw the lira plummet.
But lo and behold, Turkish banks are on track to secure margins on their one year debt that are even tighter than the loans they raised before the downgrade. Akbank is targeting a $700m-equivalent refi this September, which is set to have all-in pricing of 210bp over Euribor and 225bp over Libor for one year debt. Margins on Akbank's last loan in March before the downgrade was 240bp over Euribor and 250bp over Libor.
While it may be true that Akbank is targeting a rollover of just under 100% of the original loan — a $980m-equivalent deal — a tightening of 30bp from its previous round of refinancing is not insignificant.
So, what do ratings even mean in the world of syndicated loans? Sure, they can cause temporary fluctuations in bond and equity markets, but the lending sector does not seem to lose sleep about rating downgrades. Most of the emerging market companies that are strong enough to tap international lenders tend to be well-established and well-regulated borrowers. That applies especially to the Turkish banks, most of which are well-established borrowers in the syndicated loan market, with some of the tier one borrowers such as Akbank having tapped international lenders every year since 1999.
That is not to say that rating agencies do not affect the loans market — of course, lenders must take rating agencies' views into account when trying to justify potential business endeavours to their in-house teams of analysts and credit risk officers. And as lenders have made clear, downgrades do make them think twice, but such long relationships mean intimate knowledge of their clients' businesses.
Last August, when the Turkish banks received pricing that was over double that of the previous season, bankers attributed it to growing uncertainty around Turkish markets — not to rating downgrades, which were simply a reflection of external circumstances.
Margins widen when events dictate: currency dips, sanctions, bankruptcies. But ratings are not the be-all and end-all.