Europe’s Junk Companies Heading to U.S. to Lower Borrowing CostsJulie Miecamp
Junk-rated European companies have more than doubled their borrowings in dollars this year taking advantage of lower debt costs in the U.S.
European companies including Kabel Deutschland GmbH, Virgin Media Inc. and Schaeffler AG raised $13.5 billion of loans this year, more than double the amount the same period in 2012, according to data compiled by Bloomberg. Dollar debt accounted for about half of all leveraged loans borrowed by European companies, compared with about a third of the total last year, the data show.
“Euro issuers have experienced slightly better pricing in the U.S.,” Taron Wade, a London-based analyst at Standard & Poor’s, said in the report. Borrowing in dollars “provides European issuers an opportunity to diversify their investor base and gain access to a large institutional market that is almost always open.”
Issuance of leveraged loans in the U.S. has soared this year with borrowers obtaining $113 billion last month from non-bank lenders, exceeding the pre-crisis peak of $55 billion in April 2007, according to JPMorgan Chase & Co. The average spread on U.S. loans purchased by non-bank lenders was at 377.6 basis points last month, while the spread on the same debt to European companies was at 438.7 basis points, according to S&P Capital IQ Leveraged Commentary and Data.
WorldPay Ltd. is seeking to raise 700 million pounds ($1.1 billion) of term loans in pounds, euros and dollars, proposing to pay an interest rate of 400 basis points more than benchmarks for the dollar portion, 75 basis points lower than offered for the portion in pounds and 25 basis points lower than the euro slice. A basis point is 0.01 percentage point.
“While most are companies with significant U.S. operations or U.S. dollar operations, an increasing number with no operational link to the U.S. have been able to access the U.S. market,” according to the report.