Loan Market Going Global
The opening session of the Loan Syndications and Trading Association's conference dealt with the global loan market and the developments in Europe, Japan, Latin America and the Asia Pacific markets.
The opening session of the Loan Syndications and Trading Association's conference dealt with the global loan market and the developments in Europe, Japan, Latin America and the Asia Pacific markets. More U.S. investors entering into these other markets, coupled with increased sponsor activity and merger and acquisitions in these areas, has led to increased deal volume and increased liquidity.
Kim Humphreys, chair of the Loan Market Association, and head of corporate, sovereign & project syndications group at Mizuho Corporate Bank in London, said the number of transactions in Europe has not increased, but the size of the transactions have. There was $1.3 trillion in volume in 2005, he said, citing Dealogic data. He attributes this growth to increased merger and acquisition activity, driven by European and U.S. sponsor business. He said acquisition facilities, year to date, amount to $209 billion.
Demand from institutional investors has increased dramatically over the past three years as U.S. funds in Europe continue to impact the market. He went so far as to suggest the LMA set up an institutional committee to work with new funds. Although new issue spreads in Europe are not as tight as in America, they continue to trend downward, with the new market standard coming in closer to 200/250/300 on the revolver, "A" loan and "B" loan. He has also seen larger carve outs for "B" and "C" loans in the last six months.
Jumping across the globe, Humphreys' turned the podium over to John Corrin, managing director and head of the global loan syndication group Asia Pacific for Calyon, based in Hong Kong. Noting the audience's enjoyment of baseball analogies he explained his market this way: "If North America is like the American League, producing most of the winners and Europe is like the National League, producing a winner sometimes, then Asia Pacific is like a corporate game of softball at Central Park on a wet afternoon."
The chairman of the Asia Pacific Loan Market Association (ALPMA), Corrin said total issuance in volume for 2005 was $146 billion, the first time that number has surpassed the 1997 level. He said the fourth quarter is promising and he anticipates volume could reach $160 billion for 2006.
He attributed the increase to M&A, but said refinancing remains the main source of loan volume in the Asian Pacific market. He anticipates the market will continue to grow. In China, domestic banks established their own LSTA two months ago and that country is estimated to have $9 billion in volume this year, though Corrin said that number could be understated.
Shusaku Minoda, managing executive officer at Mizuho Corporate Bank, said the Japanese market is becoming more transparent and has seen more cross-border syndicated loans in which Japanese investors are providing financing to borrowers outside of Japan. He said the number of buyout deals has been steadily growing since the first buyout in 1998, with the average deal size more than doubling in the last five years, according to research from JAFCO, as presented by Minoda.
"Building on John [Corrin]'s analogy, if Asia Pacific is like softball in Central Park, Latin America is like stickball around the corner," said Mario Espinosa, head of Latin America loan syndications at Citigroup.
Brazil accounts for the largest volume of loans, with 49%; Mexico comes in second with 35% of the volume. Total volume in 2005 equaled $40.6 billion, while volume for just the third quarter of 2006 was $33.6 billion. This year has seen acquisition financing and financial sponsor activity dominate the landscape. He also said the "B" loan market has begun to develop with the September $475 million term loan "B" for VTR in Chile, the first in the region.