Moderate capital: A Citibank branch is seen in San Francisco, California. The lender says term-loan issuance will likely continue to be muted next year as banks grapple with regulatory uncertainty. — Bloomberg
NEW YORK: Bankers expect issuance in the US blue-chip loan market to pick up in 2024 after rising interest rates this year largely kept borrowers on the sidelines.
Investment-grade companies raised about US$1.01 trillion through revolving credit facilities, term loans and other syndicated loans this year through Dec 20, according to data compiled by Bloomberg.
That’s down about 26% from last year.
Those forecasting an uptick in issuance anticipate more mergers and acquisitions (M&As) coming down the pike, bringing opportunities for companies to borrow.
A flurry of new M&A deals announced in the past few weeks supports that prediction, with more than US$40bil of mergers and acquisitions hitting the wire Monday.
Recently, Occidental Petroleum Corp lined up US$10bil of debt for its takeover of CrownRock LP, one of the largest bridge financing deals of the year.
“My view is that we’re going to have a year that’s stronger than 2023,” said Anish Shah, global head of investment-grade acquisition finance at Morgan Stanley.
Shah also said refinancing activity will be strong, as firms typically extend maturities when markets are stable. Companies will likely take advantage of borrowing costs coming down if the Federal Reserve cuts interest rates as it indicated last week.
Still, term-loan issuance will likely continue to be muted next year as banks grapple with regulatory uncertainty, said Susan Olsen, Citigroup Inc’s head of North America investment-grade loans.
Banks are awaiting the latest on Basel III, an international regulatory agreement. If approved, by mid-2025 it would require big banks to increase what they need to keep on hand to ensure they can survive another crunch.
“If banks have to hold more capital, they’re either going to pull back on commitments or they’re going to have to reallocate capital,” Olsen said. “One way to do it is to pull back on committing to term loans.”
High-grade companies already relied less on the term-loan market this year, borrowing about US$182bil, down 37% from 2022, according to data compiled by Bloomberg.
That’s partly because dealmaking, which often calls for debt financing, was at the lowest in a decade. A slice of this year’s issuance number is made up of Broadcom Inc’s US$28.4bil of new term loans to replace its bridge loan for its purchase of VMware Inc.
Despite a hazy outlook for term loans, Olsen anticipated overall volumes in the investment-grade loan market will be higher next year after borrowers took a break in 2023.
“Regular-way refinancings should be higher in 2024,” she said. “We’re optimistic the M&A pipeline is building, and along with that will come bridge financing and capital market opportunities.” — Bloomberg
