European Loan Demand Plummets After Record-Breaking Rush for Cash

(Bloomberg) -- European loan demand has plummeted after last year’s record-breaking rush for cash.

Companies are bouncing back from the pandemic and turning to other sources of financing, like the bond market, and using term extensions and covenant waivers to bridge financing gaps. Loan sales for Europe, the Middle East and Africa fell 43% to 227 billion euros ($272 billion) for January to April from a year-earlier, according to data compiled by Bloomberg.

It’s a far cry from April last year, which posted the strongest-ever loan sales of 157 billion euros in a single month as companies’ rushed to support their needs with short-term liquidity facilities, to gain financial headroom.

Loan demand “has been covered by an exceptionally high volume in the fixed-income markets,” according to Reinhard Haas, head of syndicated finance with Commerzbank AG. Borrowers, such as Deutsche Lufthansa AG and Thales SA, have turned to repay some of their debt by raising funds in the bond market where yields have tumbled since the peak of the crisis.

In addition, “plans for investment that would require dependable projections, still seem difficult for the moment for smaller companies” amid the pandemic uncertainty, Haas added.

One year on, a third of the 181 billion euros of emergency funding raised has either been repaid, canceled or replaced by longer-maturity financing. About 116 billion euros of the virus funds are still outstanding, and 24 billion euros are due by the end of this year, the data show.

Companies like car hire firm Sixt SE and sportswear maker Adidas AG, which converted their pandemic borrowings to longer-term facilities, have boosted hopes for more such demand in the loan market.

Besides the short-term liquidity lines, companies also drew down 72 billion euros from existing credit facilities largely in March and April last year. Only 13 billion euros of those used funds have been replaced so far, boosting hopes of potential refinancing.

However, many of the emergency credit lines and companies’ revolving facilities come with extension options, delaying the need to refinance in the market. U.K. travel-services provider Saga Plc, for example, extended its loans while amending covenants for greater financial flexibility in March.

Even so, the loan market remains a lifeline to the hardest-hit sectors in the Covid era, including airlines and leisure companies after a year of shuttered venues and grounded aircraft fleets.

Easyjet Plc and International Consolidated Airlines Group SA are among borrowers to tap the market this year, while 15 companies including Intercontinental Hotels Group Plc and Fuller Smith & Turner Plc have sought covenant waivers or looser financial terms.

Click here for a worksheet of pandemic-driven loan transactions in Europe.

©2021 Bloomberg L.P.