The global syndicated loan market is slowing, with $112.5 billion of merger and acquisition (M&A) loans for highly-rated companies and leveraged loans for riskier “junk” companies sitting on banks’ books.
Banks’ ability to derisk by syndicating the loans has been reduced by extreme market volatility and a lack of senior decision-makers during the holiday period.
The combination of heavy deal flow, as a result of an upturn in M&A and leveraged lending for private equity buyouts, and uncertainty about the deteriorating macroeconomic picture is making it difficult for lenders to predict how the market and investors will react in September.
The global market has $70 billion of M&A loans for highly-rated investment-grade companies to place if all of the M&A trades complete and $43.15 billion of leveraged loans to syndicate, according to Thomson Reuters data.
The U.S. market – the largest and most active market in the world – has the most exposure, with $55.2 billion of high-grade M&A and leveraged loans to sell, followed by Europe, with $37.25 billion of loans, and Asia, with $20 billion.
The timing of the crisis is also creating concern about second-half deal flow, particularly in the hard-hit EMEA market, where banks are focusing on pushing through deals that were launched some time ago but subsequently stalled.
“The pipeline is empty and the second half is toast. All of my origination colleagues are working and pretending that it’s happening, but I don’t see a meaningful recovery this year. I’m sure it’ll be better than it is in September and October, but it couldn’t be much worse,” a senior London-based syndicator said.
Banks are still very keen to lend to M&A loans for highly rated companies. Financing is available but some of the deals may fail to complete due to the slumping equity prices of target companies and wild volatility may encourage would-be buyers to hang fire.
The global leveraged loan market for more indebted leveraged companies, including private equity buyouts, is most affected by the panic that swept the markets last week as downgrade fears spread to France, sparking a run on French bank stocks.