Syndicated loan task already half done

The funding demands on banks from large companies looks like they will be easy to accommodate this year. ANZ estimates the maturity pipeline of syndicated loans in 2010 at only $44 billion, with half of that effectively refinanced already under arrangements between borrowers and their banks worked out last year.

John Hudson, head of loan syndications for Australia and New Zealand at ANZ, provided an overview of the loan market in 2010 at a Finance & Treasury Association seminar on the outlook for corporate debt markets in Melbourne on Wednesday. (Hudson and other speakers will reprise their talks at a corresponding FTA seminar in Sydney today.)

Banks financed $64 billion through the syndicated loan market last year on ANZ and Bloomberg estimates, with three quarters of this refinancing. This was down from the 2007 volumes of $115 billion.

Hudson noted his forecast at the same seminar in early 2009 when he estimated a funding requirement for large corporates of $130 billion, including $85 billion in maturing loans, $25 billion in maturing bond issues in the debt capital market and projections at the time of funding needed for capital expenditure of $20 billion.

This time last year Hudson estimated the "funding gap" at $35 billion, which was in the middle of a wide range of such estimates from various banking sources and amid plenty of unease over the global economic outlook.

In the end the equity capital market more than plugged the hole, for Australian companies at least. In addition to $64 billion in loans financed through the syndications routes the equity market stumped up $70 billion in new capital in 2009. Corporate issuers sold $22 billion in bonds into the domestic debt capital market in 2009, on ANZ estimates.

Hudson said there was only $22 billion in forecast loan market demand in 2010 due to early refinancing last year of a similar amount. Banks dangled a mix of carrots and sticks in front of corporates to engineer early refinancing last year; often by stressing the availability of funding in what was feared to be a credit-constrained environment, and with the benefit to the bank of an immediate lift in margins on the loans.

In 2011 Hudson said the notional base demand for loans was $58 billion, but even then corporates had already arranged refinancing for $11 billion of that.

Hudson said that foreign banks maintained a more or less steady share of funding for syndicated loans for Australian names in 2009 at around 45 per cent. However, Asian banks were more prominent lenders as North American banks became much more selective.

Hudson said that while pricing on syndicated loans widened markedly between 2007 and 2009, price benchmarks had stabilised and there were signs that pricing may tighten.

BBB-rated companies could raise three-year debt in the glory days of early 2007 at spreads of between 40 and 70 basis points. BBB-rated companies were raising debt at spreads of 275 to 325 basis points last year.

Hudson said the participation of Asian banks was now creating price tension in the market, while debt capital markets - including decent access to the public and private placement markets in the US - was starting to provide real benchmarks for the loan market.

However, Hudson noted that funding costs for banks remained high; and said that recent signs of price tightening were partly due to a lack of supply of loans.