The Great Debate UK
Bonds steal thunder from loans in Europe
- Alexander Smith is a Reuters columnist. The opinions expressed are his own. -
When the going got tough, banks were quick to bring down the shutters and cut off loans to European companies, forcing them to seek other sources of funding. The result — a dramatic shift to the bond markets, where corporates borrow directly from investors.
This failure of the banks to be there when borrowers needed them most could spell the end of the European syndicated loan market as the powerhouse of corporate finance activity in the region, marking a longer-term shift in the funding mix for European companies from loans to bonds.
The European loan market had already fallen to $867 billion in 2008 — from a record high of $1.7 trillion during the leveraged loan frenzy of 2007. Nevertheless, it remained a mainstay of the relationship banking model. This year the decline has continued, as European loan volumes have fallen by 35 percent year-on-year to $225 billion, with leveraged loans down by some 62 percent, according to Thomson Reuters data.
Meanwhile, Eurobond issuance is up 38 percent year-on-year, reaching $1.4 trillion of new bonds so far in 2009. 2008 was itself a near record year for new issues in the Eurobond market, just below the $3 trillion issued during the whole of 2007.
