Few corporate treasurers can have been surprised by last week’s report from the Bank of England, which revealed that bank financing for large cap UK firms was cheaper and more easily available than at almost any point since the credit crunch of 2008.
Over the past year, CFOs and treasurers have been looking on the loan product more and more favourably. Indeed, a survey of leading UK CFOs carried out by Deloitte in the first quarter revealed that a net balance of 53% of borrowers found bank borrowing to be an attractive source of funding, up from 41% in the last quarter of 2012.
This returned interest in the loans product is now feeding through to the primary markets.
Although treasurers are not turning away from the public bond markets — still their preferred source of funding, according to Deloitte, and still a key product in the drive for funding diversification — there is a renewed focus on loan market funding.
Treasurers, recognising that banks’ appetite to lend is creating the perfect conditions for issuance, are choosing to refinance their 2014, 2015 and even 2016 maturities way ahead of schedule. Borrowers such as Vivendi, BASF and Telecom Italia returned to the loan market early in the first quarter of 2013.
But some corporate issuers are going even further. Recognising that the low volumes in the bank market provide an ideal opportunity to borrow, some treasurers are planning on front-loading their loan borrowing plans and turning away from the bond markets.
Conditions for these strongly rated, large cap borrowers are just so attractive that treasurers are being tempted to look at taking on far more than they need.
This story, of course, is not universal. At the same time as publishing its Trends in Lending report last week, the Bank of England announced that it would extend its Funding for Lending scheme to January 2015, in an effort to entice UK banks to lend to small and medium-sized enterprises. Although participation in the scheme increased over the fourth quarter of 2012, actual lending to the real economy still contracted over the same period.
As large cap borrowers revel in excess loan market liquidity over the coming few months, the disparity between the haves and the have-nots in the market is becoming even more stark.