London - April 3, 2006 - Final first quarter figures for EMEA syndicated lending show volume of $252 billion narrowly edging over the $248 billion of the same period last year as M&A financing made up for reduced levels of refinancing activity, according to Reuters LPC.

Acquisition financing of $139 billion dominated first quarter borrowing and made up 55% of all first quarter lending. The boom in M&A borrowing came at an opportune time as refinancing activity halved to 23% in the first quarter from 56% in the first quarter of 2005 as banks proved reluctant to lower the cost of capital further.

Investment grade companies borrowed $169 billion in the first quarter. $87 billion or 51% of this total was for M&A, which nearly tripled from early 2005 levels as low borrowing costs boosted corporate confidence and enabled bids, including hostile offers with higher cash components.

Despite this heightened M&A activity, investment grade lending dropped by 13% from early 2005's refinancing wave. Pricing has remained static since mid 2005, and most blue chip companies have now locked in financings of up to seven years at favourable rates.

M&A activity produced the EMEA market's largest-ever loan - the record €32 billion loan for German utility E.ON which backs its bid for Spanish rival Endesa. There were fewer, larger loans for blue-chip borrowers - 138 deals in the first quarter - which shows a 23% decline on the 180 deals completed in early 2005.

Other large M&A financings include Mittal Steel, which borrowed €eight billion to finance its bid for Arcelor, Linde borrowed €8.2 billion for its acquisition of BOC and RAG took €5.25 billion to finance the purchase of the remainder of Degussa it did not already own.

Arranging banks syndicated these deals to sub-underwriters towards the end of the quarter to spread the risk as some of the bids ran into political and regulatory delays. Although M&A kept the market busy in the first quarter, it failed to dent record liquidity and asset hunger.

This liquidity is also shaping the vibrant European leveraged market, which finances private equity firms' purchases and more highly leveraged non-investment grade companies, where demand for assets far outstrips supply.

The leveraged market turned in record quarterly volume of $58.6 billion which is up 42% increase on the first quarter of 2005 and also set a new first quarter high. Private equity borrowing of $40.4 billion made up 69% of all leveraged borrowing.

$31 billion of private equity borrowing backed new buyouts and $9 billion backed recapitalisations of existing transactions which allow sponsors to realise some of their equity investments.

The trend towards fewer larger deals is even more evident in the leveraged market, which saw a 30% year-on-year decrease to 56 deals in the first quarter. Average leveraged deal sizes on the other hand jumped to a record $1.045 billion in the first quarter, up 68% on the $620 billion average figure for 2005.

Deal sizes continued to increase - average leveraged deal sizes were $1.045 billion in the first quarter as the market comfortably absorbed a new quantum of debt on the jumbo loans for British chemicals company Ineos and Danish telecom company TDC. Despite their size, these deals closed heavily oversubscribed and investor's demand for paper only seemed to grow as the quarter wore on.

The leveraged market is in a feeding frenzy right now," a head of syndicate said.

The level of oversubscriptions on the loans points to massive unsatisfied demand, despite historically high leverage levels, which are making the market an uncomfortable place. Average total debt ratios hit 5.53 times in the first quarter, and average senior debt ratios are 4.33 times.

The large oversubscriptions on these transactions and others prompted reverse price flex and structural changes for the majority of first quarter buyouts, including the repayment of high-yield bond bridges and the insertion of second lien loans. Second lien loans of $2.4 billion set a new quarterly record, and mezzanine lending loans totalling $6.8 billion did likewise.

The M&A wave benefited banks with strong advisory capabilities. Deutsche Bank’s involvement in a significant number of large M&A transactions put the bank at the top of Reuters LPC’s mandated lead arranger league table, arranging 26 deals worth $24 billion, giving Deutsche a 9.56% market share.

Citigroup also played an active role in M&A and was in second place, arranging 32 deals worth $22.4 billion, giving a 8.92% market share and J.P. Morgan was in third place with 21 deals totalling $18 billion, giving a 7.18% share of the market.

Rank	Lender	Pro Rata ($)	Full Credit ($)	Deals	Market Share
1	Deutsche Bank	24,522,509,455	103,470,777,000	26	9.40%
2	Citigroup	22,309,169,356	94,092,625,564	32	8.55%
3	Royal Bank of Scotland	18,031,324,283	101,397,759,451	51	6.91%
4	JP Morgan	18,019,433,364	83,954,674,220	22	6.90%
5	HSBC	17,235,862,907	83,356,915,182	33	6.60%
6	Barclays	16,053,325,257	69,346,605,415	43	6.15%
7	BNP Paribas	15,219,848,628	62,955,256,821	59	5.83%
8	Societe Generale CIB	10,049,453,790	49,023,086,514	33	3.85%
9	DrKW	7,998,283,556	41,305,336,090	29	3.06%
10	Morgan Stanley	6,942,388,874	40,793,176,290	8	2.66%

About Reuters Loan Pricing Corporation
Reuters LPC's extensive suite of news and information solutions enables industry players to stay informed about market trends and facilitate business decisions. Reuters LPC's total focus and commitment to the loan industry have generated state-of-the-art products and services tailored to the loan market's growing needs.

Today, Reuters LPC's news, data and analytics span the United States, Europe, Middle East, Africa, Latin America, Asia and the Pacific region. Products and services include print publications, and online news, analytics and interactive databases. Reuters LPC's global coverage is supported by its presence in New York, London, Hong Kong and Tokyo.

Return to top

 | © 2005-2006 Reuters Loan Pricing Corporation | Privacy Policy |