Soldiering on: loan markets battle through 1H22
Loan market issuance in 1H22 was blasted by the effects of rampant inflation, supply-chain issues, tightening monetary policy, and Russia’s war in Europe. Global loan volumes secured in the first six months of the year reached only USD 2.2trn – the second-lowest value in six years and barely ahead of 1H20’s USD 2.1trn. Issuance from the Americas ensured the gain versus 2020, it being the only region to post higher volumes than those seen in the year the pandemic struck.
Using historical averages, volumes in the first half of the year have generally exceeded activity in the second half. Based on data from the past decade, an estimated USD 4.1trn can be expected in 2022. However, with such volatile macroeconomic movement this year, making predictions on issuance is not an easy task.
Looking at the data on a quarterly basis, the EMEA and APAC regions in 2Q22 hit their lowest totals since 2012 and 2009, respectively. In contrast to this trend, the Americas posted a larger total in the second quarter, at USD 809bn, than in 1Q22 and on a par with or exceeding years prior to the coronavirus pandemic.
Overall, the Americas represent a vastly greater market than EMEA and APAC, accounting for USD 1.41trn in 2022 to date versus USD 464bn and USD 340bn, respectively. The US accounts for the lion’s share of activity in the Americas, with USD 1.399trn raised of the Americas total.
Taking shelter: higher-rated loans fare well in downturn
Investment-grade (IG) loans have proved particularly desirable in the highly volatile environment of 2022. With multiple indicators pointing towards an impending recession – and therefore an expected increase in bankruptcies and restructuring processes – capital in need of being deployed is being invested in higher-rated companies’ debt. So far this year, almost USD 1trn has been raised in leveraged capital markets compared with USD 1.25trn in the IG space. Last year, USD 2.6trn was raised in leveraged markets (including USD 1.6trn solely from the Americas) versus USD 3.1trn from higher-rated firms.
In the crosshairs: maturing debt looms ahead
Outstanding debt maturities in the EMEA region are currently set to peak in 2023 at USD 483bn. Debt in the Americas faces a similar amount in 2023, but the wall due to be refinanced rises the following year to USD 609bn in 2024 and USD 619bn in 2025. At the recent historical rate of USD 2.7trn raised in the Americas in a year, the maturity wall is not expected to represent an issue in terms of availability of capital. APAC has a similar peak to EMEA; however, its zenith lies only in 2024 at USD 443bn, which leaves yet more time for refinancing.
Leading the resistance: ESG continues in relative strength
Despite the overarching difficulties of securing debt facilities so far this year, environmental, social and governance (ESG) activity has continued in strength, with the first six months of 2022 already exceeding the full-year totals for 2020 and 2019. While ESG issuance in EMEA continues to rise year-on-year (YoY), both APAC and the Americas have usually taken more market share each year. APAC has risen steadily to 16% of total ESG issuance from 2% in 2018, while ESG activity in the Americas has risen each year to a total of 42% of global ESG issuance from 8% in 2018. So far in 2022, the Americas have outpaced EMEA for the first time, with USD 105.6bn raised versus EMEA’s USD 105.2bn.
Holding the line: uses of debt financing defy volatility
One of the few metrics that has been seemingly left unchanged this year is the use of debt financing. Despite significant changes in overall volume, when looking at the proportion of total activity, refinancing has remained at 56%, while M&A excluding leveraged buy-outs (LBOs) stands at 14% and LBO activity sits at 5%. These categories have remained within a 1-2% variance in recent years, save only for the rise in general corporate purposes in 2020, when firms secured vast sums of capital for general business security.
Double whammy: loan maturity bifurcation
Loan maturities have seen a bifurcation by region in the first half of the year. When comparing with the previous two years, EMEA loans have been issued with longer maturities (around six years) than the established averages, while in the Americas, loans have shortened to an average of 4.3 years. However, on longer timescales, loans from EMEA have returned to historical averages, while APAC loans have significantly shortened over time to five years. These long- and short-term trends hold for both leveraged and IG loans.
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