Weak first quarter for domestic syndicated loan market

Australian syndicated loan volumes fell heavily in the March quarter, with issuance down 50 per cent on the previous corresponding period. It was the fourth lowest quarter in the past ten years.

According to the latest KPMG Debt Market Update, US$7 billion of issuance was dominated by infrastructure transactions, including US$1.03 billion of project financing for ConnectEast, the operator of Melbourne's EastLink motorway, and US$1.04 billion of acquisition financing for AMP's purchase of Royal North Shore Hospital.

KPMG said volume in the medium term note market was down four per cent to US$3 billion.

On the positive side, issuance by Australians offshore rose three-fold to US$9 billion during the quarter, compared with the previous corresponding period.

The biggest offshore deal with natural gas operator APA Group's US$3.7 billion issue, which went into the US, euro and sterling markets. It was the biggest ever issue by a BBB rated Australian issuer.

KPMG said borrowing costs were down during the quarter. Corporate spreads were largely unchanged but swap rates narrowed. The five-year bank bill swap rate dropped 110 basis points during 2014 and fell by another 37 bps during the March quarter.

The offshore market wasn't a happy hunting ground for everyone. KPMG said several deals were pulled, including issues by Bradken and Fortescue.

Fortescue did eventually raise US$2.3 billion but at a yield of 10.25 per cent.