European companies are on course to borrow less than €500bn from the syndicated loan markets this year for the first time in a decade as shrinking bank lending pushes groups to seek more funding from the public bond markets.
Just less than half of the €495bn total new debt funding for European companies so far this year has been from the loan markets, which is the smallest ever proportion and down from 60 per cent last year, according to a Fitch analysis.
The data highlight how Europe is increasingly moving towards a more US-style market based model of corporate finance. In the US two-thirds of corporate borrowing comes from the bond markets, while in Europe it is just one-third.
"Companies in Europe are using the bond market much more actively due to a fall in regular bank lending since the financial crisis and the very low interest rates," said Monica Insoll, managing director at Fitch, the rating agency.
The loan-to-bond shift in Europe is being helped along by the Basel III global banking regulations, which are forcing banks around the world to hold more capital against loans, leading to higher rates and less lending.
Companies are also attracted by the steep fall in borrowing costs on the back of central bank action, particularly since the European Central Bank calmed markets last year with promises to save the eurozone.
Average borrowing costs on European investment grade corporate bonds have fallen from 2.8 per cent last summer to 1.8 per cent last month, according to Barclays indices, although costs have risen again in recent weeks to 2.2 per cent.
Total funding from new bank loans was only €238bn in the first half, suggesting a full-year total below €500bn for the first time in a decade. The full-year figures could be little more than a third of the €1.2tn peak in 2007, according to Fitch.
The same report – which analysed five years of balance sheets of 201 rated European companies – also argued that bonds are a more important part of the region's corporate balance sheets than had previously been assumed.
Bond financing accounts for 82 per cent of the average corporate debt structure, according to the rating agency, up from 68 per cent in 2008. This is a higher ratio than issuance data suggest because most loans are just unused standby facilities.
Fund managers and insurers have also been stepping in to fill the void left by falling bank lending in recent years, with groups such as M&G, Legal & General and BlueBay increasingly offering direct loans to companies.
BlackRock, Schroders and Allianz Global are offering a number of infrastructure and property loans as well while Axa, the insurance company, announced a €10bn new direct lending initiative in June.
