Premier corporates locking in large refinancing facilities for seven years in Europe and five years in the US dominated the first half of the year, but M&A activity has since risen to its highest level since 2000. After five years of aggressive deleveraging, corporates are now sufficiently debt free to pursue expansion and acquisition plans. And given that the cost of money has rarely been cheaper, the market could be on the cusp of major revival in M&A, even if high liquidity means the premiums on such deals are not what they once were.
However, M&A has been far from the only show in town. The convergence of the Central and Eastern European markets into the broader European market is another major theme.
Borrowers in the recent EU accession countries of Central Europe are now paying the same as their Western European counterparts, while Russia has continued its rehabilitation in investors' eyes. Once strictly the domain of specialist emerging market players, mainstream banks now have major ambitions in the country, even if lenders have yet to join the rating agencies and grant Russia full investment-grade status.
Much of Russia's rise is due to the effect of record high oil prices, and this has also enlivened markets in the Middle East. It has been a bumper year for Middle Eastern project financings, financial institutions have borrowed heavily and even corporates are starting to tap the market.
With the region so active and its banks to liquid, it is hardly surprising that Islamic financing has really taken off. While Islamic loans have long been a staple of domestic deals, the region's borrowers have now started issuing such paper internationally, and finding strong support for it. So liquid are local Middle Eastern banks that even some foreign companies have begun issuing Islamic loans in order to tap this new source of liquidity.
Leveraged finance has been another big story this year on both sides of the Atlantic. In the US, the leveraged loan market has been so strong that even a near total shut-down of the high-yield bond market was not enough to halt the flurry of buyouts, or the loans supporting them.
In Europe, the market continued to grow in both size and sophistication. The growth of the institutional investor base, especially hedge funds, has continued this year, as has the range of subordinated debt products that has grown alongside them. Warranted mezzanine, warrantless mezzanine, second-lien notes and PIK notes are just some of the subordinated debt instruments that were considered exotic or simply unknown two years ago, but are now mainstays of the market.