Just as the central and eastern European loan market seemed to be taking off last year, along came the Asian crisis to blow away much of its progress.
The focus this year is on reviving confidence. But it is a slow process. And many borrowers have found it hard to attract banks at a time when credit lines have been cut and the market mood is one of caution.
Demand for loans from borrowers across the region remains high. But many lenders are unlikely to be tempted back until the perceived rise in political and commercial risks in the region is reflected in shorter deal tenors, tighter structures and higher margins and fees.
Given that many borrowers were - until last October - achieving terms that were similar to those for western European credits, such a reversal is hard to stomach.
But they have little choice. There is broad consensus among arrangers that the market was becoming overheated in 1997.
Until market appetite picks up, many banks are focusing on pre-export, agribusiness and non-recourse financings at the expense of general corporate lending - especially for borrowers which have neither sufficiently strong relationships, nor enough extra business to attract lenders. Toby Fildes reports.
How times have changed for central and east European borrowers in the syndicated loan market - and how quickly.
In 1997, the region's economies tapped the loan market in spectacular fashion.
International lenders were falling over themselves to provide loans that were large in size and low in margins and fees. Tenors were stretched to unprecedented levels and the number of covenants fell sharply.
But this year has seen a complete reversal of fortunes for the region's borrowers. From January 1 to April 22, loans totalling $1.426bn have been signed for central and eastern European borrowers- compared to $6.535bn of deals signed in the same period in 1997. The decline has been dramatic.
And whereas the trend in 1997 was for bigger deals to soak up rampant demand among lenders, the first four months of this year have seen much smaller transactions carrying sharply reduced tenors and dramatically higher margins - in some cases, double their comparable levels from just a year ago.
The reason? Most bankers and borrowers blame the Asian financial crisis. Eastern Europe, out of all the emerging markets, has been hardest hit. "Asia's meltdown happened at a crucial time in the region's development," says one banker. "More progress had been made in the first 10 months in 1997 than had been achieved in the previous six or seven years. Confidence of all parties involved - borrowers, development, commercial and investment banks and investors - had reached an all time high.
"All parties had grown used to the techniques and nuances particular to executing successful transactions in central and eastern Europe. But that confidence seeped away when the full implications of Asia's financial crisis became apparent."
But also to blame for the comparative dearth of loan business in the region is a degree of over-exuberance by lenders in 1997. Many participants - in particular, certain German and Japanese banks - adopted a league table-driven approach to the region, which gave rise to a herd mentality.
Because lenders were so keen to participate in transactions, many banks took on huge amounts of paper, some of which paid the same margins as credits from western Europe.
Many underwriters and participants took on this debt with a view to selling it off in secondary syndications or in the secondary market. But when the Asian crisis hit, they were unable to offload paper and have been left in the position of being ordered to reduce their credit and tenor limits while holding overladen portfolios.
"With hindsight, central and eastern Europe was not quite ready for such enormous activity," says one banker. "There was - and still is - huge demand for liquidity and investment in the region. But many bankers were blinded by this great demand and piled in."
He adds: "Everybody wanted a piece of the action. At times it was like a frenzy. Margins fell almost every day, tenors were strung out to record levels and structures were allowed to loosen. But people were seemingly overlooking fundamental problems in the region. It was, and still is, an emerging market, and with emerging markets comes volatility - be it currency, politics or social.
"And a crisis, like the Asian one, is bound to hit emerging markets harder than developed ones. Essentially, the region was allowed to climb too far up the financing ladder. And when the Asian crisis hit central and eastern Europe, the region had a long way to fall."
But while appetite has been greatly reduced, the experience gained from 1997's successes has not been forgotten and relationships forged over the past three years have been maintained.
And bankers, while admitting that the last two months of 1997 and the first three months of 1998 have been extremely tough, believe that the next six months will see confidence gradually return and the dealflow pick up.
Few believe the level of activity and the type of deals seen in 1997, especially in the second quarter, will be replicated, though. Banks, during the past six months, have readjusted their credit limits and identified key clients, structures and sectors.
As a result, clear themes are emerging, not least the demand for more secure deal structures. Classic financing techniques, such as pre-export financing, barter, countertrade and other trade related structures, are making a comeback.
And perceived second tier borrowers have been temporarily dropped, while banks target only the top quality banks and corporates.
"There has been a significant readjustment by the banks this year," says one German banker. "The days when second level borrowers can achieve 25bp over Libor are thankfully over. Instead, there is a more concerted approach to risk/return ratios.
"Banks will achieve this through not only offering higher pricing and shorter tenors, but also by increasing their pre-export financing activities. They will analyse who their best clients have been over the past two years and stick with them, gradually persuading them that pricing has moved up across the board."
Russian syndicated loan activity in 1997 - most notably in the second quarter - was unprecedented. It was so good that even the most pessimistic observers were beginning to believe that Russia had finally turned the corner.
But with the Asian financial crisis, and the ensuing political and economic upheavals at home conspiring to erode the confidence of lenders, business has reduced almost to a halt, and financiers are now back to where they were three years ago.
Of all the countries in central and eastern Europe, Russia has been hardest hit. Nowhere else is there such demand for the loan product. The country's banks, corporates, utilities, natural resource companies and traders are all cash strapped to the point of being unable to pay their tax bills.
And with the bond market only open to the sovereign and selected regions, cities and utilities, the loan instrument offers the only form of liquidity available to most Russian borrowers.
But even if the political and economic situations rapidly improve and confidence returns to last year's levels, lenders will still be reluctant to increase their exposure. Why? Most banks have full Russian credit lines as a result of last year's enormous activity.
Nowhere else in the region was the over-exuberance and herd mentality of 1997 more prevalent than in Russia. Pricing dropped to record levels and tenors were stretched to western European standards. Even middle tier banks and corporates were tapping the loan market for the first time through one year revolvers that carried terms more suitable to top level borrowers.
Much of this great appetite was for RAO Gazprom, which made several visits to the loan market in 1997; as a result, the gas company's debt is now clogging up most banks' credit lines.
Gazprom tapped the market, through arrangers Dresdner Bank and Crédit Lyonnais, for over $5.5bn through a $1.2bn bridging loan and two receivables backed syndicated facilities - $2.5bn and $3bn - both of which were used to pay off tax arrears, for general corporate purposes and to finance the company's ambitious Yamal gas pipeline which will link its gas fields in Siberia with Germany.
The bridging facility was well received in the market and served to whet the appetite for Gazprom's subsequent facilities.
Indeed, the next deal, the $2.5bn facility - which was used to finance construction of the pipeline, secured on offtake contracts signed by Ruhrgas and Snam - was phenomenally successful in syndication, with overwhelming interest shown at all levels of retail. Most bankers agree it was among the most successful syndicated loan facilities of the year.
But the third deal - the $3bn financing which was used to retire the $1.2bn bridging loan and to finance further construction of Yamal, and secured on offtake contracts with Gaz de France and Finland's Gasun - proved to be an altogether trickier affair.
While the senior levels of syndication were well supported, the general syndication flopped. Retail syndication was launched just as the Asian crisis was taking off, and many banks which had gorged themselves on the $2.5bn facility decided that they had already had more than enough Russian risk on their books.
Consequently, the arrangers and co-arrangers were left with much more debt than anticipated. And those participants who came into syndication for relationship reasons have had little opportunity to offload Gazprom paper in the secondary market.
Many observers believe that appetite for Russia will not increase until banks can sell some of their paper. "We have been told in no uncertain terms that we cannot look at Russia until we have freed up our credit lines," says one New York banker.
"We have to get rid of some before we can take some more on. But there are very few takers for Russian debt paying under 200bp over seven years. Therefore we have to sit and hold until the situation improves. The trouble is that it is going to take a long, long time."
But it is not all doom and gloom. While deals like those that Gazprom sponsored are clearly not possible this year, bankers are continually working on ways to service at least part of the enormous demand continually shown by Russian borrowers. And banks, despite experiencing a tough time over the past six months, are beginning to respond.
But they are looking at Russia in a different light. Gone is the herd mentality and the machismo of setting Russian pricing and tenor benchmarks.
Instead, lenders are adopting a more cautious approach through deals that are for borrowers at the very top of the first tier, short in tenor, government backed, secured on export receivables, small in size or co-financed with multilaterals.
Those deals which can offer some or all of these qualities have led the way so far this year. Russia's biggest, and perhaps most surprising, success has been the $200m term loan for Gazprom Bank.
Although some bankers have said that the deal took too long to close, syndication was a blow-out success with an impressive oversubscription. Consequently, the loan was increased to $230m, making it the largest Russian loan to close this year.
It is an exceptional achievement considering the unfavourable market conditions and the fact that Gazprom Bank's parent - RAO Gazprom - is clogging up most participants' credit lines. However the facility's tenor of one year and margin of 400bp over Libor impressed lenders.
"The tenor is the right length for Russian loans," says a banker. "Banks' credit lines are tied up and so they can only take on short term paper. The pricing is also accurate. Lenders need more encouragement as there is a more concerted approach to risk/return ratios."
Another transaction to close successfully in recent weeks is the $35m syndicated term loan for International Company for Finance and Investments (ICFI). The facility, arranged by RZB and Société Générale, is an extension of a $35m loan arranged last year. The loan was oversubscribed in syndication and increased to $50m.
While the margin and tenor are identical to last year's loan - 425bp and one year - the deal carries two of the aforementioned qualities: creditworthiness and use of proceeds.
ICFI is rated seventh among Russian banks in terms of capital, according to Interfax, while the proceeds will be used to finance trade related activities.
"We came into the deal because we were impressed by the borrower and the use of the loan," says one German participant. "We are only looking at top 10 banks and those which will be used for trade related activities. This deal is one of the few we have seen this year that have these two qualities. And while our credit committee was initially sceptical about the tenor - it currently prefers six month deals - the margin fits well in the Russian average."
Another deal that benefited from carrying some of the aforementioned qualities was the $25m trade financing for Bank Imperial, arranged by Bank Austria and BT Alex Brown. The loan carried a margin of 412.5bp and was strongly backed in general syndication.
Key to its success was the strength of the borrower - Bank Imperial's shareholders include Gazprom and Lukoil. But lenders also liked the fact that Bank Imperial is one of Russia's strongest banks, while the size of the facility was smaller and the pricing higher than the bank's previous borrowing - which paid 387.5bp for a $50m one year term loan.
The $20m pre-export financing for Severstal was also well received in the market and was duly increased to $30m. The borrower is Russia's largest producer of steel products and therefore benefits from reliable foreign contracts, allowing it to tap the pre-export finance markets.
The loan, arranged by Standard Bank London, carried a margin of 475bp. Again, the deal contains many of the qualities which co-arrangers and participants are now demanding from Russian deal structures.
"The success of the deal is not only due to the attractive pricing and the small size of the facility but also to the fact that the loan is secured on the export of steel products," says one banker.
"By having foreign export contracts, the deal escapes much of the payment risk - a real bonus in current market conditions."
One deal that has benefited from having government involvement is the inaugural $30m term loan for the Government of the Leningrad Oblast. WestMerchant and Moscow Narodny arranged the loan for the constituent Federal Subject (region) surrounding St Petersburg.
The three year term loan was extremely well supported in syndication, with over $50m being committed by banks. As a result, the borrower took advantage of the oversubscription and opted to increase the loan to $50m.
According to the arrangers, the successful completion of the deal is indicative of the loan market's confidence in the Leningrad Oblast - one of the Russian Federation's leading regional authorities.
But also key to its success is the heavy involvement by local Russian banks who have strong relationships with the borrower, and the pricing which, at 425bp, was well received by the market - participants have said that the margin is very much in line with their risk/return ratios.
But not all deals that contain these qualities have been successful. The $30m credit for facility for BashCredit Bank, lead arranged by Deutsche Morgan Grenfell, was cut to $25m because of lack of appetite in general syndication.
And this poor response was in spite of the loan having a tenor of just six months. Observers blamed the lack of participant appetite on the pricing and the size of the facility.
According to observers, BashCredit Bank is not a top 20 bank and is not well known by international lenders. "The deal was too big for such a bank," says one Vienna-based banker. "The key thing here is the name. A more suitable size would have been $15m. Also the pricing was too low. Top 20 Russian banks, even top 10 banks, are now offering up to 500bp. The deal was over-ambitious. Maybe a year ago, it could have raised $30m. But not in these current market conditions."
Not all pre-export finance deals have been successful either. The credit facility for Yukos has also struggled in syndication, despite it being secured on oil export contracts. The deal was reduced from $800m to $500m, while the pricing was increased from 300bp to 500bp - although the tenor has remained at five years.
Merrill Lynch was originally looking for as many as five co-arrangers. However, it had to settle for three - and the deal was closed in the first week of April, long after the February 27 deadline.
According to some observers, the deal's progress through the various syndication levels was initially hampered by the merger between Yukos and Sibneft, which led to the deal being restructured.
"Many bankers were frightened by the repricing and reduction in size," says one banker. "The arrangers were within their rights to restructure because the merger delayed the transaction. But bankers do not like to see repackaging. It created uncertainty in their minds. In this case, it gave the deal a bad name."
But others lay some of the blame on the arranging group, suggesting that information concerning the deal could have been more forthcoming, and that the structure was over-ambitious for market conditions.
"When the deal came out to co-arrangers, it seemed everyone had gone on annual leave," says one London banker. "As a result, the deal failed to pick up momentum from the first day. Also the size of the co-arranging takes was very large - outside the normal amount."
Some bankers also suggest the deal was hit by the maturity. While Gazprom achieved seven years through pre-export finance structures last year in strong market conditions, many bankers are doubtful as to whether there is a five year market this year. That six month and one year deals have struggled this year further adds to their scepticism.
Over the past two years, the Czech Republic has made impressive progress in the syndicated loan market. As in Russia, international bank appetite in 1997 was such that margins plunged to record levels, and pricing for Czech borrowers was consistently among the lowest found in the region.
However, the country has proved not to be immune from the Asian crisis, and lending appetite has fallen dramatically. So far this year, only three deals have closed. And they were not even this year's deals - all three were scheduled to close in November and December, but were delayed due to the turmoil resulting from the Asian crisis.
But the paucity of deals is not just because of Asia. Many bankers are unhappy with the political and macro-economic situation in the Czech Republic and point to the protracted and unsuccessful privatisation process as an example of the country's inability to effect economic progress.
"The question of privatisation is still unanswered," says one German banker. "International banks are still unsure what will happen. As a result, there is not sufficient trust that the country will develop as quickly as it should."
Because of the acute uncertainty and subsequent lack of pricing benchmarks, banks have found the Czech Republic the hardest country in the region in which to price deals.
It is a severe problem - banks do not want to be the first into the market and end up caught with a mispriced deal, but they also want a dealflow.
Also adding to the problem is the fact that Czech borrowers have been less willing than Russian borrowers to accept a rise in margins and therefore demand for loans is less than in Russia, for example, or the Baltics.
But the problem could be resolved within the next few weeks, with the launch of a new benchmark financing for the City of Prague.
The city requested bids from banks for a $105m credit facility in March and lenders gave top priority to structuring a loan package capable of winning the coveted mandate. ING Barings won the deal in late April, with an all in price of about 38bp over Libor.
Some bankers who lost out on the deal were surprised at the pricing, suggesting it was too thin for current market conditions. Others said, however, that an aggressive price was to be expected as Prague is the top rated municipal credit in the region with an A- rating by Standard & Poor's.
"The deal is vital to the Czech loan market," says one German banker. "It will hopefully break the impasse. But there are few better credits than the City of Prague, and we never expected the price to be more than 40bp. It is still cheap for current market conditions, but at least it is a start. After that, we will wait and see. Hopefully the deal will show Czech borrowers that pricing has gone up and that they start to accept higher margins."
Before the Asian crisis, Hungary was roughly on a par with the Czech Republic and Poland as far as bank lenders were concerned.
Top Hungarian banks were tapping the syndicated loan markets for debt priced as low as 12.5bp over Libor. Corporates and utilities, such as telecom company Matav, were also regular visitors to the market, achieving record low pricing. It was one of the emerging market success stories.
But now banks are less sure as to where the country stands. Some believe Hungary's economic fundamentals are better than the Czech Republic's, and that the country may be due for a rating improvement.
But others have expressed concern over the size of country's external debt levels and are worried that the country's economy may slide into recession.
With two very different views of the Hungarian economic situation, uncertainty is rife. As in the Czech Republic, bankers have had severe difficulties in calling the price for Hungary in the current market conditions.
And while all agree that pricing should be higher, opinions differ on the level of increase. Some bankers believe margins should be 30bp higher while others are more conservative - suggesting that Hungary deserves nothing more than a 15bp increase.
Demand for Hungarian loans from the corporate and banking sectors has been particularly low. Only one credit facility for a corporate has closed this year - the $50m revolving credit for tile manufacturer Zalakeramia arranged by Credit Suisse First Boston and Crédit Lyonnais.
The loan carries a margin of 95bp and a 45bp commitment over a three year maturity and was well supported in general syndication. But, despite its success in retail, banks have been unable to use the deal as a pricing pointer. Dealflow needs to pick up, they say, before any reliable pricing indicators are established.
But the transaction which international bankers are watching with most interest is the non-recourse financing of the Csepel II power project, sponsored by PowerGen of the UK.
The project will have a non-recourse debt facility of about $200m and general syndication is scheduled to be launched in early May. Credit Suisse First Boston are arrangers.
If syndication is a success, bankers expect to see more Hungarian project finance deals coming to market this year. Indeed, with the corporate and financial institution markets extremely quiet, many bankers believe the project finance sector will provide the bulk of syndicated loan activity this year.
"Hungary could well be one of the big project finance markets this year," says one Frankfurt banker. "Banks need higher returns, and with the plain vanilla loan market so slow this year, many lenders will have appetite for non-recourse financings."
With the most stable economy and largest population in the region, many bankers see Poland as central and eastern Europe's most promising market.
For a while the country trailed behind the Czech Republic in terms of foreign investors' favoured credits. But because of comparatively prudent economic and social policies, Poland has become the preferred country.
As a result, it is likely that Poland's borrowers will lead the market this year in syndicated loan activity - at least from the corporate and financial institution sectors.
But even Poland has not escaped the downturn. Three deals have closed this year, all of them launched in 1997. And of these, only the Raffineria Gdanska deal, totalling $115.2m over seven years, was originally scheduled to close this year.
Even that transaction closed two months late due to changes in Poland's foreign currency regime, which forced arranger Dresdner to suspend retail syndication until the alterations were fully understood.
Despite its problems in general syndication, the deal was well supported. Carrying a margin of 42.5bp for the first five years and 47.5bp for years six and seven, the pricing was seen as accurate for current market conditions.
And many bankers see the deal as a pricing pointer. "Raffineria Gdanska has showed other Polish borrowers that pricing has gone up," says one European banker. "It was originally priced late last year, but the changes in market conditions were taken into account."
The deal also provided welcome relief to bankers who, in 1997, saw some private Polish borrowers' pricing fall from 150bp to 25bp inside six months.
Poland's project finance sector looks set to provide lenders with high yielding opportunities as well. Projects across the spectrum of sectors all need financing. But it is the telecom and power sectors which are attracting the greatest interest.
One telecom project is the build-out of the Polkomtel GSM venture. General syndication has been launched by arrangers Deutsche Bank and Banque Nationale de Paris and appetite has so far been stronger than anticipated.
The deal was originally mandated to Bank of America, Bank Pekao and Credit Suisse First Boston, but the banks failed to reach agreement over the deal's structure and withdrew. Deutsche, originally the adviser to the project's sponsor, took over the arranging responsibilities - presenting a different structure containing higher pricing.
The loan is split between a DM585m term loan, a DM75m revolving credit and a Z300m term loan. All three tranches have a maturity of eight years, and pricing on the Deutschmarks facilities are 127.5bp and 130bp on the zloty tranche. Again, bankers have been impressed by the pricing. "A year ago, this pricing would be under 100bp, perhaps as low as 75bp," says one potential participant. "But this pricing is sympathetic to the poor market conditions."
An increasingly dangerous trade deficit, a poor political climate and the threat of a downgrade by Moody's have created tough market conditions for Slovakian borrowers this year. And the lack of deals has meant that no discernible pricing trend has emerged.
But banks have been quick to adapt to the increased risks in Slovakia. While only a handful of deals have closed, a clear theme is emerging among them - an increase in the size arranging or co-arranging groups to counter the lack of appetite of specialist participants.
One deal that emphasises this safety in numbers approach is the $135m five year term loan for Zeleznice Slovenskej Republiky. Arranged by Bank of Tokyo-Mitsubishi, Barclays, Bayerische Vereinsbank, Commerzbank, Credit Suisse First Boston, Dai-ichi Kangyo Bank, Creditanstalt, Tatra Banka and KfW, it was launched into a limited general syndication.
Appetite was low and only two banks came in. But the fact that the deal was well supported by a strong arranging group meant that the borrower could afford for the deal to lag in general syndication.
The two tranche facility for state owned Slovak Telekomunikacie (Slovak Telcom) was another transaction to benefit from a similar syndication approach.
Sumitomo lead arranged the deal, which consists of a Ecu100m five year EIB guarantee facility priced at 85bp per annum and a $45m three year loan priced at 80bp over Libor.
But underneath the lead arranger was a large group of co-arrangers - consisting of Banco Central-Hispanoamericano, ING, Crédit Lyonnais, Dexia Municipal Bank, Erste Bank, WestLB, BNP-Dresdner, Berliner, Citibank (Slovakia) and Commerzbank.
The EIB's involvement was also key to the success of the deal - the facility's structure is similar to those used in the CEZ, Slovenske Electrarne, Mobitel and Matav deals, all of which were signed last year.
"The deal was presented as sovereign risk mitigated," says one banker. "For example, the guarantee is not called by the EIB for transferability problems or other similar political risk events."
Croatia was one of the surprise successes in the loan market last year. Borrowers benefited from spectacular falls in pricing - the sovereign, for example, saw its cost of borrowings sharply reduce from 175bp to 65bp.
But this year, pricing has risen sharply, in line with margins seen elsewhere in the region, and appetite has dropped just as rapidly.
Most Croatian deals launched this year have struggled in syndication. But there has been one notable exception - the credit facility for Hrvatska Elektrprivreda (HEP), arranged by Dresdner Bank Luxembourg.
Knowing that market conditions were poor and that appetite was limited, the arranger structured the deal as two facilities - one a DM100m three year revolving credit priced at 85bp; the other a DM150m five year tranche, which is a revolver for the first two years that is merged into a term loan.
By adopting this structure, the deal allowed co-arrangers and participants a choice of investment. "Rather than take a guess at how much appetite there was for Croatia, we decided to create a flexible structure," says a source at Dresdner.
"The market is extremely hard to call, both in terms of appetite and in pricing. With this structure, we have been able to allow the market to come in where it feels comfortable."
From the outset, Dresdner expected most banks to commit to the three year tranche. This was indeed the case. But over DM150m was raised, meaning that banks have taken some of the five year debt.
However, the success of the HEP transaction damaged other deals which were in the market at the same time. Merrill Lynch's $100m facility for Ina, the Croatian oil company, was pulled from the market in mid April, with Merrill blaming a lack of appetite in syndication caused by participants committing to the HEP transaction and the deal's seven year maturity.
"There is a small and defined market for Croatia," says one Merrill Lynch banker. "When competing with a three or five year transaction, seven years was a real push for many lenders."
Another deal to have difficulty in syndication is the Istrian toll road project, although not because of the HEP transaction. Syndication was scheduled to close in mid April, but has been extended to mid May.
The project has a total cost of DM350m, of which DM250m is in non-recourse debt which consists of a DM235m term loan and a DM15m seven year standby facility.
The term loan is split between a Coface-backed DM170m 10 year facility and a DM65m uncovered commercial tranche. The uncovered tranche consists of a DM35m 10 year loan provided by Zagrebakca and a Dm30m eight year loan provided by UBS.
According to a spokesman at UBS, while potential participants have found the structure strong and well presented, they have struggled to get comfortable with 10 years of Croatian country risk.
"The amount of money available for this type of transaction is limited," says the spokesman. "This is understandable. But, as a result, banks have only been able to provide smaller amounts. So the process is taking longer than expected."
Only one deal has closed so far this year in Slovenia - the DM100m three year revolving credit for the republic itself.
At first glance it is a sorry statistic. But it is the same number as this time a year ago. Furthermore, the Republic of Slovenia's deal was a blow-out in syndication - being increased to DM150m.
It was an impressive result, not simply because it was launched in mid January - just as many banks were reviewing their eastern European credit lines - but also because Slovenia is perceived by some to have a weaker economy than its many of its neighbours.
Much of the success is down to the way in which the deal was arranged: when the mandate was offered, the ministry of finance was anxious not to disappoint any of its relationship banks.
The borrower knew market appetite was limited and therefore made the low key appointment of a co-ordinator - Deutsche Bank - and arranged a targeted syndication, inviting a strong group of banks to come in as joint arrangers.
However, the deal's pricing and fees also aided its smooth progress through syndication. With a margin of 27.5bp, the borrower paid between 5bp and 7.5bp more than it would have done six months previously.
"The borrower accepted that a price rise was necessary," says one joint arranger. "In difficult market conditions, there is no point quibbling over 2.5bp.
"You want a deal to go well and it is worth paying a little bit more for that to happen. It was a responsible decision by the borrower and one that should encourage other Slovenian borrowers to come to market."
Weak economic fundamentals failed to dissuade arrangers and providers from servicing Romanian borrowers' financial needs last year.
As a result, 1997 was a landmark year for the country's borrowers - the Romanian Electricity Authority raised a $150m one year bullet loan priced at 95bp, marking the first time a Romanian borrower had broken the 100bp barrier.
But the lack of confidence in the region has meant that Romania comes a long way down the list of international lenders' priorities in 1998. Banks have identified their key clients, and there are few Romanians on the list.
Some of these borrowers are those which need non or limited recourse debt, therefore offering more security to lenders.
One example is mobile telecom operator Mobilrom, for which ING Barings, Société Générale and IFC have signed a $160m term loan. Mobilrom will use the proceeds, which are limited-recourse, to finance the build-out of its GSM network.
The financing is split between a $40m 'A' loan and a $160m 'B' loan provided by commercial banks.
|Volume of signed loans for central & eastern European borrowers (January 1, 1998 to May 7, 1998)|
|Total amt. $m||Ave. $m||Pcnt.||Iss.|
|Source: Capital Data Bondware|