* Loans: margins are growing, business faltering as risk aversion strikes
SYDNEY, April 29 (LPC) – Australian companies pay more for syndicated loans as banks are under pressure on their own funding costs, reversing a downtrend that pushed prices to five-year lows in 2019.
Many borrowers have quickly secured their balance sheets with short-term credit lines, refinancing, and term extensions through bilateral and club deals. Those braving volatile market conditions with syndicated deals have encountered higher financing costs. This effect was more pronounced on riskier loans, as lenders retain capital for high-quality borrowers.
“We can expect an escape to quality with lenders focusing their balance sheets on core customers,” said Andrew Ashman, head of the Asia-Pacific loan consortium at Barclays in Singapore. “Many companies are withdrawing their revolving standby facilities in order to increase their liquidity position. This could affect the liquidity available on the credit market and lead to price inflation. “
Australian companies now offering higher interest margins on new financing include Qantas Airways, Macquarie Group, Vodafone Hutchison Australia, TPG Telecom, Vocus Group and AirTrunk.
Qantas is syndicating a 10 year secured loan of at least A $ 300 million ($ 194 million) with an interest margin of 225bps above the BBSY. The transaction follows an A $ 1.05 billion loan with a term of up to 10 years that was completed in March and pays an interest rate of 2.75%. The airline’s previous asset-backed loan was in October 2018 when it raised A $ 450 million over 10-year financing with margins of 145-175 basis points against BBSY.
Meanwhile, a $ 5.25 billion loan to fund the merger of Vodafone Hutchison Australia and TPG Telecom was priced down 65 basis points for each of the three tranches just days before the mid-April commitment deadline . The A $ 15 billion merger was first announced in August 2018 but blocked by the Australian Competition and Consumer Commission in May 2019 and later revived.
Borrowers revised interest margins for the three- and five-year tranches to 190bps and 210bps versus BBSY based on a net debt to Ebitda ratio of 2.5x-3.0x. The mid-March loan originally offered margins of 125 basis points and 145 basis points versus BBSY, which was already higher than the initial margins of 110 basis points and 130 basis points the two companies had for the same three- and five-year maturities with a funding of 4, A $ 75 billion offer had closed last January.
Borrowing costs for Vocus have also increased, as Vocus is back on the market after two years. Vodafone’s smaller rival is offering initial margins of 290bps, 310bps and 330bps on its latest A $ 1.4 billion loan with maturities of 2.25, 3.25 and 4.25 years based on net debt from 2.75x-3.0x. This compares to initial margins of 200bps, 215bps, and 230bps for the same maturities with a $ 1.42 billion loan.
Data center operator AirTrunk also hiked the pricing of a multi-currency term loan B by around A $ 1.6 billion and increased the margin by 75 basis points to 450 basis points. Meanwhile, Macquarie closed an initial five-year ninja loan in April at a reduced volume of 300 million. When the transaction launched in early March, the original volume was $ 400 million, priced 100 basis points above the Libor.
The recent trend towards more expensive credit contrasts sharply with 2019, when interest margins on five-year investment-grade syndicated loans averaged 117.50 basis points in Australia, the lowest since 2014, according to data from Refinitiv LPC. The average of three-year syndicated loans also fell in 2019 to its lowest level in five years.
With market conditions showing little evidence of a rapid recovery, some borrowers have postponed their fundraising.
“What tends to happen in Australia during a time of crisis is that the primary pipeline is stalling and the syndication that was in the pipeline is almost out of date and difficult to move. That’s what we’re going to find now, ”said Bob Sahota, Managing Director and Chief Investment Officer at Revolution Asset Management, which invests in leveraged loans in Australia and New Zealand.
France’s Total and Japan’s Inpex have suspended a proposed refinancing and revaluation of loans for the Ichthys LNG project in Western Australia. Some lenders found the price discussion of 140bps above the Libor for the 8.5-year commercial tranche loan to be too tight under the current market conditions.
Indonesia’s Adaro Energy and Australian private equity firm EMR Capital are also providing € 1.69 billion in refinancing.
The retail real estate group Vicinity Centers and the Australian unit of the Spanish conglomerate Acciona have also suspended syndication of their loans.
However, not all companies have time on their side. According to data from Refinitiv LPC, Australian companies have $ 59.6 billion in loans due this year. At the same time, banks will have to pay $ 600 billion in non-performing loans in the Asia-Pacific region in 2020, according to an S&P report released on April 6.