Loan bankers of Europe, you may be pretty good at syndicating and originating, but you’re not too hot at predicting the future.
With the Loan Market Association’s annual conference being held in London this week, the market has a chance to look back to last year’s event and judge the predictions made at that time. Optimistic bankers said that prices for revolving credit facilities would have to increase over 2013 to come more in line with banks’ own cost of funding. We all know how well that has worked out.
Similarly, in a vote held at last year’s event, some 43% of attendees said that they expected syndicated loan volumes to increase by more than 10% over the coming 12 months, while another 43% said that activity would remain relatively unchanged.
But it was the pessimistic minority of the market that has actually been proved right. According to data provider Dealogic, syndicated loan volumes in EMEA fell 44% year on year in the second quarter of the year, standing at just $313.9bn for the first half of 2013.
In spite of the disheartening statistics, though, the atmosphere at the LMA’s flagship event this year is likely to be optimistic. Bankers’ confidence has been buoyed by the completion of Verizon’s jumbo M&A deal earlier this month, with the smooth execution — from the underwriting to the speedy take-out in the capital markets through the largest ever corporate bond deal — illustrating just what is possible for acquisition financing.
And although pricing for revolving credit facilities has tumbled over the last 18 months, bankers are at least reassured that the attractive market conditions have enticed many borrowers to refinance deals early, meaning that many clients now have their funding in place until well after the Basel III regulation is due to come into play.
Aside from recent transactions, there is a sense that loan market participants — traditional bank lenders, institutional investors and treasurers — are becoming more comfortable in the new funding landscape. Although nobody expects the last ever market crisis to have been tackled, they are at least more comfortable that any volatility can be effectively by the loans community — whether through the short term assimilation of foreign currency premiums, the introduction of first draw fees or other bespoke structuring innovations.
If they are feeling really optimistic, banks might also allow themselves to believe that the painful disintermediation process that has seen a huge chunk of corporate financing shift from the bank market to the bond market might now be slowing, with loans now to be welcomed as a financing option to be considered alongside bonds rather than in competition with them.
One thing is for certain: this year’s LMA conference will address loans market that is more mature than ever before — one that is poised to support corporates in their increasingly confident interest in M&A, one that is more flexible and valuable than in previous years, and one that is looking ahead to establish its role within the wider financing community.
