Investment Grade Market

EMEA IG Loan Volume (EUR b) April ’21 IG loan volume approx. 60% lower compared to last year

Eurozone IG credit margin and IRS CDS spreads (as a proxy for credit margin) stabilized

Investment Grade Market - Market observation per 17 May 2021 -

EMEA IG loan markets showed a slow start of the year

  • Q1 ‘21 EMEA IG loan volume rose 25% compared to previous quarter yet dropped 40% compared to the same period last year
  • Early Q1 ‘21 total IG EMEA loan volume was low as companies were patiently waiting for terms and conditions to return to pre-Covid levels. Additionally, companies have been waiting for benchmark transactions entering the markets
  • Albeit activity picking up in April ’21, EMEA IG loan volume was still approximately 60% lower compared to the same period last year. In April ’20, volumes were exceptionally high as companies rushed to secure liquidity

In Q2 ’21 normality is returning to EMEA IG loan markets

  • Pricing rose sharply last year as companies were eager to secure credit lines, banks’ funding costs spiked, and liquidity became stretched. At the same time, maturities shortened to 3+1+1 years as bank appetite for longer tenors vanished
  • In April & May ’21 tenors and pricing gradually returned to pre-Covid levels, encouraging companies to refinance their credit facilities
  • Deals with tenors of 5+1+1 years are signed again and pricing is stabilizing, which is driven by competition between banks for business and increased confidence of vaccine programs
  • The trend is most prevailing in industries least impacted by Covid

Revival of IG M&A financing as economies open again

  • Activity in the European IG loan market is expected to accelerate. Refinancing activity is likely to strengthen further, and borrowers are increasingly looking for acquisition financing
  • IG M&A financing declined drastically in 2020 as a result of the pandemic. However, as market conditions normalise and economies reopen, companies have increased confidence to proceed with event-driven transactions such as acquisition finance
  • In May ’21, IG loan markets are open again for acquisition financing and lender appetite is present

Benchmark costs at pre-Covid levels due to low swap rates

  • Eurozone IG credit default swap (CDS) spreads remained stable at around 50 bps despite volatility on equity markets
  • Benchmark IG funding costs (5-year IRS + IG CDS spreads) have recovered to pre-Covid levels, mainly as a result of low IRS rates
  • The rising IRS rates in Q2 ’21 have widened benchmark costs somewhat, albeit IRS remaining remarkably low. As per 14 May ‘21, benchmark costs stand at around 25 – 30 bps