Syndicated loan volumes to European corporates fell unexpectedly to €107 billion during the first quarter, a two-year low, according to a Fitch Ratings report released on Tuesday.
Bonds accounted for 54 percent of new corporate debt funding, nearly double its 15-year average of 30 percent.
Fitch attributed the decline in loans to a renewed focus on reducing debt and conserving cash as emerging-market growth slows and continuing political turmoil in Russia and Ukraine. Perhaps unsurprisingly, Russian corporate borrowing fell 80 percent during Q1.
“It’s a broad, regionally based development, which I hadn’t expected to see at this point in time,” Fitch Credit Market Research managing director Monica Insoll told Private Debt Investor, adding that the Ukrainian crisis took place towards the end of the quarter.
Western Europe was also subject to declines, however. Germany, UK and France-based corporate entities borrowed 23 percent less than they did in Q1 2013. Together account for half of European syndicated loan totals.
“The drop in corporate funding is more likely to be demand than supply driven and may partially reflect subdued corporate capex plans for 2014,” according to the report. Furthermore, favourable market conditions in 2013 allowed many companies to pre-fund this year’s debt maturities.