Jumps in the cycle
Euromoney, is part of the Delinian Group, Delinian Limited, 4 Bouverie Street, London, EC4Y 8AX, Registered in England & Wales, Company number 00954730
Copyright © Delinian Limited and its affiliated companies 2024
Accessibility | Terms of Use | Privacy Policy | Modern Slavery Statement

Jumps in the cycle

Wafer-thin margins and favourable conditions have tempted many borrowers to refinance in the syndicated loan market. But the cycle may now be shifting a gear. Much of the refinancing is done and lenders are venturing lower down the credit rankings. They may get stung. Christopher Spink reports

Loan syndication departments have been working at fever pitch since last year. But they continue to suffer dangerous pressure on margins, while maturities are stretched and covenants become sketchier. The competition is tempting them to take higher risks for less reward. That will continue until a shock kicks on the cycle.

In 1995 volumes hit their highest-ever levels ­ $374.2 billion ­ compared with $178.2 billion in 1994, tailing slightly to $180 billion in the first six months of this year. Yet at the beginning of the 1990s the market was bleak, for both borrowers and lenders, before it warmed up. The syndicated loan market tends to follow a cycle.

Many larger corporates have taken advantage of the recent ludicrously low pricing to refinance their medium-term debt, and lock it in for five years or more. Refinancings, via revolving facilities, have dominated the scene for the past 18 months. Some lenders are now wondering where profit-making deals will come from after 1995's record refinancing-fuelled boom.

The pace hardly slackened this year. Grant Johnson, head of loan syndication at NatWest Markets, comments: "The market remains strong ­ an endless stream of banks still seem ready to participate in the right deals."

Gift this article