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(Bloomberg Opinion) — With rising interest rates and their market repercussions, companies are pulling away from the debt market in a way they haven’t seen in this decade.
Businesses are delaying borrowing if they can because of how quickly rates have risen in recent months, analysts say. Global syndicated loan sales fell 43% in the first quarter to $493 billion, the lowest level since 2010.
“The new issue loan market used to be a ghost town, especially after bank failures,” said Scott Macklin, director of leveraged lending at AllianceBernstein. “Now the loan buyers are returning in droves, even though few new loans are available.”
In addition, several banks that arrange business financing withdrew plans to bring loans to market last month, while M&A activity, a big driver of loan sales, has slowed sharply.
It is unclear how long the trend will last. Loan deals could pick up in the second quarter as risk appetite returns as concerns about the banking sector ease. The US leveraged loan market has a number of deals with commitments expiring this week, three of which surfaced on Monday.
In 2023, the volume of US investment grade loans could exceed levels of previous years due to refinancing, as companies rush to meet the deadline for the transition from Libor to SOFR at the end of June, according to Susan Olsen, Citigroup Inc’s investment grade lending officer for North America.
The bond market has not experienced such a sharp decline and there is still strong investor appetite for the safest types of corporate debt. However, the loans also tend to finance riskier companies and be used by private equity firms to organize leveraged buyouts.
Last week, British buyout firm Cinven skirted debt markets entirely to buy a German building materials business, a rare move that showed how private equity is changing its usual strategies to adapt to a volatile market. Cinven will use his own money to buy the business, people familiar with the matter said.
In March, the banks also delayed granting a €820 million loan to Ineos Enterprises and withdrew a US$1.08 billion deal for Agiliti Health.
Nota Original:Loan Sales Plummet to the Lowest in a Decade as Debt Costs Jump
–With the collaboration of Lisa Lee (News).
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