2012 EMEA Corporate Issue Volumes Face Downward Pressure
Strong corporate issuance of US$334bn in 2011 highlights the popularity of corporates as an asset class among investors, giving strong corporates the ability to issue even in stressed markets, according to Fitch Ratings. However, the overall numbers disguise a flight from low speculative-grade issuers, where volumes fell 22% in 2011. Issuance for stronger speculative-grade issuers (BB- and above) was more robust falling only 6%.
Overall, Fitch expects refinancing needs to be lower in 2012. Based on a sample of 284 corporates, debt maturities in 2012 are 16%, or about US$40bn lower than in 2011. Fitch’s most recent liquidity study showed that most highly-rated corporates enjoy robust liquidity. Therefore, matching 2011’s numbers will require new sources of issuance.
Investors’ attitude to speculative-grade issuance will be key to the levels of this new issuance. It will have implications for both existing speculative-grade borrowers, and for the long-term trend towards corporate funding disintermediation. Fitch sees more companies accessing the debt capital markets directly as the best way to obtain funding when banks’ ability to lend directly is under pressure.
While some of these companies will be investment-grade, these are the least likely to see pressure on their existing bank lines. Speculative grade borrowers are more likely to see restrictions, and to be encouraged to seek capital market funding if the market is open to them.
Similarly, high-yield bonds are the logical refinancing route for large parts of the European leverage credit market currently funded by bank and/or CLO debt. While companies have made progress in pushing refinancing needs beyond 2012, Fitch still expects €49bn of loans and bonds from speculative grade companies to mature in 2012, with a further €76bn in 2013. Companies will have to address both immediate and longer-term requirements in 2012 to avoid potential problems later.