Eurozone darling

IFR Germany Report 2012
4 min read

The German syndicated loan market continues to be a favourite among German and foreign banks thanks to the country’s stable economy in the ailing eurozone and blue-chip companies that supply the loan market with jumbo deals.

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While syndicated lending in EMEA slumped 50% versus last year as European banks focus on shrinking balance sheets to meet tough new capital rules, loan activity in Germany remained stable with unchanged total volumes of US$29bn this year, according to Thomson Reuters data.

The stability in the country’s loan market was driven by a number of jumbo refinancings, including a €6bn deal for automotive group Schaeffler, a €4bn refinancing for industrial conglomerate Siemens and a €3bn maturity extension for HeidelbergCement.

“German corporates are in good shape and are expanding and as a result there will be an increased need for loans for refinancing or event-driven purposes,” said Torsten Aul, head of syndicate at IKB.

German banks have also slightly increased their pro-rata share in the loan market, from 11% in 2011 to 12% so far this year, while French, Italian and Spanish banks all had to give up market share in EMEA due rising funding costs and a cut-back in lending to non-core clients and regions, which resulted in a loan-asset sell-off in particular by French and Spanish banks.

Although German banks have been relatively inactive in selling large loan positions, some German banks have started reducing their commitments, in particular on leveraged buyout loans.

“German banks usually committed large tickets on syndicated facilities, but there is a tendency to reduce the ticket sizes on deals in the primary market and further partial sell-down of positions in the secondary market if the prices are right in order to release balance sheet,” Aul said.

Home markets

Like French and peripheral banks, German banks are cutting lending outside the country with Bundesbank data showing that German banks cut financing for foreign banks and companies by around €480bn from 2007 to 2011 compared with an increase of €195bn of financing to domestic companies, according to a Fitch report.

But unlike the peripheral banks, the move puts German banks in a pole position due to the country’s economic strength compared to uncertainties in France, Spain and Italy, bankers argue.

“German banks will benefit from the strength of the German economy as corporates will fall back on their local house-banks. German banks are also well placed in the current market due to lower funding costs compared to many other European banks,” Aul said.

Nevertheless, most European banks have seen an increase in funding costs, including dollar funding, which has inevitably resulted in some premiums on German loan deals as well.

“We are seeing a few new trends coming to Germany as a result of the wider market developments, such as the premiums on US dollar drawings, reflected on deals such as HeidelbergCement and Henkel. The feature is nothing specific for the German bank market but a result of developments in the European market as a whole,” said Volkhardt Kruse, head of syndication and sales at Commerzbank.

German consumer goods maker Henkel’s €800m revolving credit facility paid a first-draw utilisation fee and a premium of 50bp on dollar drawings, helping to soothe the concerns of some European banks.

Schuldscheine return

Schuldscheine are making a comeback in Germany. The privately placed paper, which is typically less expensive than a bond with maturities of up to 10 years, is also available to non-German companies such as UK supermarket J Sainsbury, which raised a €100m Schuldschein in February.

“Borrowers find them attractive in uncertain environments and they provide an alternative to the loan and bond market, especially for smaller to mid-sized deals of up to €500m. It’s a product that can also come in combination with a syndicated loan as we have seen in deals like GKM. It’s an area that we expect to grow further,” said Dominik Mueller, Commerzbank’s deputy head loan capital markets Europe.

In 2011, Schuldschein volumes doubled to almost €8bn from €4bn in 2010 and so far in 2012 there were already €3.5bn worth of Schuldscheine, the largest being a €500m Schuldschein for publisher Axel Springer, according to Commerzbank data.