EUROPEAN companies could find it hard to bargain for the kinder interest rates that the relationship-driven corporate loan market typically offers, as inflation and tighter monetary policy begin to bite into their funders' pockets.
Pricing is likely to rise for corporate loan borrowers in the near future, said Carlo Fontana, head of global syndicate at UniCredit. "Banks' cost of capital has gone up but it is yet to filter through," he said.
The first signs of increasing borrowing costs were seen in the bond market, with corporate issuers paying almost twice as much in the second quarter compared to the first for 5-year transactions in euros.
The average pricing of 5-year Schuldschein notes, a niche debt market used mainly by firms from German-speaking countries, already witnessed a jump of about 29 per cent in the second quarter versus the first.
Austrian utility EVN is marketing its second Schuldschein of the year at 105 to 120 basis points over mid-swaps for a 13-year tranche, compared to 70 basis points paid for a 12-year term just 2 months ago.
Borrowers in the BBB rating categories are offering banks a premium over the pricing levels prevailing before Covid, said Hedi Ben Salem, head of corporate lending for Europe and Asia at Banco Bilbao Vizcaya Argentaria, and the utilities sector is particularly affected by soaring commodity prices.
"A number of utilities asked for additional liquidity lines at a time of great uncertainty around the sector," said Salem. "This had the immediate effect of changing the supply and demand balance in banks' favour and led to an overall increase in pricing for the sector."
Higher borrowing costs for corporate loans would be a U-turn from the start of the year, when issuers enjoyed pricing discounts after the Covid impact eased. They also would run counter to the market's expectations at the end of last year, when 64 per cent of respondents thought pricing would maintain the downward trend from 2021.
Besides inflation and tighter monetary policy, Russia's invasion of Ukraine in February also has made banks more wary.
"I think pricing a transaction in 2022, and especially since Feb 24, needs heightened due diligence and customisation," said Lucie Campos Caresmel, head of EMEA corporate loan distribution with Credit Agricole Corporate & Investment Bank. BLOOMBERG