Syndicated Loans 2006
Things really do not get any better this. M&A has returned in full force, the global leveraged finance boom has continued and deals in the exciting new structured finance sector abound. Even the tightly priced refinancings that have dominated the market in recent years have become a distant memory, at least outside of the US. Profitable deals have finally returned as a market mainstay. In short, 2006 is the year that loan bankers have been waiting for.
The return of corporate M&A has been the year's most exciting development and spawned two record transactions. German utility E.ON launched the largest European loan in history with a €32bn facility to support its bid for Endesa, while Brazil's CVRD smashed the record for the largest emerging market loan with a US$18bn facility to fund its bid for Inco.
German corporates were the most active on the M&A front and deals for the likes of Linde and Merck helped Germany - long a loan market laggard compared with the dynamic French and mature UK markets - fulfil its destiny as Europe's largest loan market in line with its status of Europe's largest economy.
If M&A deals were not enough to deliver some serious fee income, the emergence of crossover financings and infrastructure loans as Europe's hottest sectors surely was. Crossover Yell, for example, became the first investment-grade borrower to issue a B loan in order to attract hedge funds, while infrastructure financings for the like of Ferrovial and Associated British Ports kept the fees rolling in.
Even in the US investment-grade market, where tight general corporate purpose facilities remain a feature, borrowers found more worthy reasons to tap the market. Companies like Time Warner borrowed to fund share buybacks, while others like Tribune borrowed because its debt was so low that it felt it was vulnerable to takeover and wanted to gear up sufficiently to ward off private equity suitors.
The Middle Eastern loan market, meanwhile, continued its impressive recent expansion with a corporate market finally emerging in a region that project financings and financial institution deals have hitherto characterised. DP World, borrowing to fund its purchase of P&O, and Qatar Petroleum, which secured a club financing, are examples of this new corporate market.
Islamic financing has been the other big loan story out of the Middle East. Growth in this market, with deals for names like AREF and Etihad Airways, has prompted international banks to start arranging loans in a space where specialist regional houses dominated until now.
Leveraged finance has been the year's other big story and buyouts became a truly global phenomenon for the first time. In the US, the leveraged loan market has finally begun to shift back more in favour of lenders, ending an unprecedented period of borrower-friendly conditions.
In Europe, 2006 will be remembered as the year in which the European leveraged finance market really came of age. The market digested huge leveraged financings for TDC and Ineos early in the year but it was the market's increased sophistication, rather than just deal size, that really impressed. Deals of this nature could not have been done without large subordinated debt tranches that are structured to appeal hedge funds and institutional investors. These investors now make up about half of the investor base in what was almost a pure bank market just a few years ago.
But it was in Asia that the real LBO market transformation took place. Deals for GUM Holding in China and Software Development Systems in India showed that with innovative structuring deals could be done in these legally challenging jurisdictions. Private equity arrived in Australia too, with KKR's buyout of Brambles Cleanaway Australia and Industrial Services Australia setting a record and the same sponsor setting to break it with circa A$10bn bid for retailer Coles Myer.