BONDS & BANK LENDING: GENERAL NOTES

. Europe. Before the financial crisis, low funding costs enjoyed by banks encouraged them to embark on a lending spree giving corporations little reason to tap capital markets — until the debt crisis hit. "Since the financial crisis, corporate treasurers have become more nervous aboyt relying just on bank funding and so they are increasingly trying to tap into the corporate debt markets when they can. Banks are also perhaps more reluctant to lend in the same way as before the crisis", argues Monica Insoll at Fitch Ratings. See Raplh Atkins & Michael Stothard: "Blue-chips look beyond Europe's banks for funding", Financial Times, August 15, 2012.

. Europe. "Compared with the US, and to a lesser extent the UK, the eurozone corporate sector remains over-dependent on banks for funding. If the eurozone economy is not to be stricken by hypothermia, someone will have to offset the contractionary effect of bank deleveraging." (John Plender: "Europe faces vicious circle of disorderly bank deleveraging", Financial Times, 25 April 2012). "Traditionally, the continent's companies have relied far more heavily than their US counterparts on banks for external funding".

. Europe. European bond issuance slows down in February 2013. But 2012 was busy: €188bn of bonds sold by non-financial corporations. (The concept of "benchmark-sized bonds": a benchmark bond is typically at least €500m in size). In other words, the bond market is not for small businesses! The obvious candidates to tap bond markets —rather than turn to banks — are larger companies with good credit ratings. A survey bby Fitch of 201 rated companies showed that bonds accounted for 73% of debt at the end of 2011, up from 53% in 2008 (80% to 85% for the largest issuers). In February 2013, non-financials sold €9.75bn of benchmark-sized bonds, vs. €20.7bn in January.

. Europe. Siemens AG sold a three-part deal, two parts of which were in euros, the third in dollars, raising €2.25bn (February 2013). Among French firms, JC Decaux sold a €500m bond. In 2012, Volkswagen issued a record amount of bonds; August 2012: £250m of three-year debt at 110 bps over gilt yields, €750m of 18-month floating rate notes in semi-privte deal arranged by Bank of America Merril Lynch. August 2012: BP sells $650m in fiver-year eurodollar bonds at 70bps over mid-swaps.

. Europe. Markit's iBoxx Euro corporate index measures the performance of investment grade debt issued in euros.
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