Possibility Productions

Dec. 22 (Bloomberg) – Loans to finance acquisitions in Europe, the Middle East and Africa jumped to a three-month high as banks seek to capitalize on an increase in takeovers.

Emirates Telecommunications Corp., the United Arab Emirates-based phone company known as Etisalat, leading companies in the region arranging is $19 billion of loans this month to fund buyouts. The amount is the highest since September when BHP Billiton Ltd. obtained $45 billion of loans for its failed bid for Saskatchewan, Canada-based Potash Corp., according to data compiled by Bloomberg.Mergers and acquisitions in Europe, Africa and the Middle East climbed 34 percent to $890 billion this year from all of 2009 as companies that accumulated cash during the recession look to expand, Bloomberg data show. “Banks have lent 94.5 billion euros ($124 billion) in 2010 to fund takeovers in the region, compared with 51.2 billion euros last year, according to Societe Generale SA.”"Loan volumes going forward will be driven by new money and big M & A transactions,” said Damien Lamoril co-head of European loan syndication in Paris at Societe Generale, France’s second-largest bank. “The BHP loan was a turning point and a testimony of market confidence.” “The market has demonstrated that it’s prepared to support and finance the right deals.”Excluding the financial – services industry, the 1,000 biggest European companies by market value have amassed about $1.2 trillion in cash and equivalents based on their latest regulatory filings.Loan Market “Corporates are drawing upon their cash for acquisitions this year, but for the next large acquisition they will need to come to the bank loan market,” said Tom Muoio to managing director in Credit Suisse Group AG’s loan capital markets team in London.Fees earned from acquisition loans can be as much as double those earned on a similar-sized refinancing loan, I said. Refinancing accounted for three quarters of loan deals in the region this year, Bloomberg data show.Elsewhere in credit markets, the extra yield investors demand to own corporate bonds worldwide instead of similar – maturity government debt was unchanged at 170 basis points, or 1.7 percentage points, according to Bank of America Merrill Lynch’s Global Broad Market Corporate Index. Yields averaged 3.94 percent.The cost of protecting U.S. corporate bonds from default fell for a second day and leveraged company loan prices rose to the highest in almost six weeks. Speculative-grade company debt is likely to outperform investment – grade bonds next year, according to Janney Montgomery Scott LLC.Bondholder ProtectionThe Markit CDX North America Investment Grade Index, which investors use to hedge against losses on corporate debt or to speculate on creditworthiness, decreased 0.8 basis point to a mid-price of 87.2 basis points as of 4: 51 pm in New York, according to index administrator Markit Group Ltd. In London, the Markit iTraxx Europe Index of 125 companies with investment – grade ratings fell 1.3 basis points to 105.58. The indexes typically fall as investor confidence improves and rise as it deteriorates. Credit pay the buyer face value if a borrower fails to meet its obligations, less the value of the defaulted debt swaps. A basis point equals $1,000 annually on a contract protecting $10 million of debt.Computer Sciences’ SwapsCredit swaps on Computer Sciences Corp. jumped to the highest in almost three weeks as Chief Executive Officer Mike Laphen said the Falls Church, Virginia-based company plans to stay independent.The contracts gained 9.4 basis points to 138.5, the highest since Dec. 2, according to data provider CMA. “Joseph Vafi, an analyst with Jeffries & co., said in September to report that a private-equity firm could pay $8.7 billion for the computer – services provider and earn to return of more than 25 percent over five years.Junk bonds, Baa3 below rated by Moody’s Investors Service and lower than BBB – by Standard & Poor’s, are likely to outperform high – grade debt in 2011 as risky companies strengthen their balance sheets and more-creditworthy issuers repurchase stock and engage in mergers and acquisitions, Janney Montgomery Scott said.”"Investment-grade issuers are looking to re-leverage while high-yield issuers are looking to deleverage,” said Guy LeBas, chief fixed – income strategist and economist at Janney Montgomery Scott in Philadelphia. “The flow of dollars seems to be existing investment – grade and inspiration into high-yield, and that will really persist into 2011.”The S & P/LSTA US Leveraged Loan 100 Index rose 0.8 to 92.58 cent cents on the dollar, the highest since Nov. 10 The index tracks the 100 largest dollar-denominated first-lien leveraged company loans.Most TradedBonds from Charlotte, North Carolina-based Bank of America Corp. were the most actively traded U.S. corporate securities by dealers, with 101 trades of $1 million or more, according to trace, the bond price reporting system of the Financial Industry Regulatory Authority.The Barclays Capital Global Aggregate Index of bonds have lost 0.44 percent this month, this year’s gain to 3.72 trimming extra percent.The yield investors demand to own emerging markets bonds rather than government debt narrowed 1 basis point to 247 basis points, according to JPMorgan Chase & co. data.Etisalat LoanEtisalat index is in talks with banks to raise $12 billion of loans to fund its bid for a stake in Mobile Telecommunications Co., or Zain, Kuwait’s biggest phone operator, three people familiar with the matter said Dec. 13.Excluding BHP’s loan, which was canceled after the Potash deal was blocked by the Canadian government, it would be the biggest acquisition loan since August 2008, according to Bloomberg data. Spain’s largest gas supplier, Gas Natural SDG SA, got 18.3 billion euros of loans at that time to buy Madrid – based power producer Union Fenosa SA.VimpelCom Ltd., Russia‘s second-biggest mobile network operator, this month hired six banks for a $4 billion bridge loan to finance to planned merger with Orascom Telecom Holding SAE and Weather Investments SpA, according to Bloomberg data.Barclays Capital, BNP Paribas SA, Citigroup Inc., HSBC Holdings Plc, ING Group NV and Royal Bank of Scotland Plc agreed to provide the short-term financing, which will be refinanced with bonds next year. VimpelCom Dec said. 20 it will pursue a new agreement after its biggest shareholder Telenor ASA rejected an initial $6.5 billion for the proposal merger.UPM-Kymmene Oyj, Europe’s second-biggest papermaker, Dec said. 21 it will fund the acquisition of rivals Myllykoski Oyj and Rhein Papier GmbH with 800 million euros of loans for four, six and seven years.’Bridge to Bonds’ Abloy Assa AB, the world’s largest maker of locks, Dec said. “13 it got 14 billion kronor ($2 billion) of short-term loans to fund the acquisition of a majority stake in Cardo AB and other deals, which will be refinanced next year, mainly through the capital markets.About two-thirds of loans for mergers are likely to be refinanced with bonds next year, compared with about one third before 2007, according to Muoio at Credit Suisse.”"We’ll still see remove a large proportion of loans for M & A bridge to bonds, being” Muoio said. “It makes sense to have longer-dated debt financial corporate.”

-With assistance from Sapna Maheshwari, Mary Childs and Mitchell Martin in New York. Editors: Faris Khan, Ed Johnson

Related posts:

1. Debt Spain energy infects Enel with sovereign Woes: Euro credit
2. Buffett says U.S. banks are less attractive as profits fall
3. Set of Saudi companies for sales of debt lead 2011: Islamic finance
4. Loss of oil fuel may Jump to highest in two years: the energy markets
5. Different types of bonds