* Overall number of deals dipped 23% y-o-y to 987
* European high-grade and emerging markets volume slumped
* Leveraged loan activity at highest level since financial crisis
By Alasdair Reilly and Claire Ruckin
LONDON, Oct 3 (Reuters) - Syndicated lending in Europe, the Middle East and Africa (EMEA) fell 9% to US$610bn in the first three quarters of 2017 compared with the same period last year, according to Thomson Reuters LPC data.
Global economic and political turmoil hit appetite for loans in European high-grade and the emerging markets, but leveraged loan volume of US$176.87bn in the first nine months of the year is its highest level since the financial crisis, despite the lowest third quarter volume since 2012.
The overall number of deals completed in EMEA year-to-date dipped 23% from the same point in 2016 to 987 as the market continues to be dominated by fewer but larger financings. M&A financing slowed throughout the year while investment-grade refinancing opportunities remained limited.
With European banks still benefitting from the ECB's quantitative easing program, the loan market remains highly liquid and borrowers have access to competitively priced loan financing.
"The low number of deals could be a signpost to the reluctance from borrowers to test the market during a period of volatility, but the willingness of banks to do deals is very much still there," a senior banker said.
Loans to Europe's highest-rated companies totalled US$330.15bn in the first three quarters, which is 11% down on the same period in 2016. A burst of large-scale M&A activity in the first quarter and a flow of refinancing activity helped keep volumes stable in the first two quarters, but volumes slumped to just US$61.85bn in third quarter.
Refinancing activity, the traditional driver of EMEA lending, rose 14.7% to US$211bn in the first three quarters as increasing numbers of European companies took advantage of rock-bottom pricing to refinance or amend and extend existing facilities.
The biggest refinancing of the quarter was an 8bn (US$9.40bn) revolving credit facility for German car maker BMW BMWG.DE , which replaced an existing 6bn facility and set a new pricing benchmark. Despite the shift down in pricing, a total of 44 banks joined the facility, including lenders across Europe and the Americas, as well as an increased participation from Asian lenders.
Investment-grade M&A lending in the first three quarters totals US$149.7bn, 5% down on the same period of 2016 as high levels of activity earlier in the year were not maintained. Third quarter M&A activity slumped to just US$20.61bn.
The largest investment-grade M&A loan of the third quarter was German healthcare group Fresenius's FREG.DE US$4.2bn, 18-month bridge loan backing its US$4.75bn acquisition of US generic drugmaker Akorn.
Meanwhile oilfield services firm John Wood Group WG.L agreed US$2.75bn of loans to support its £2.2bn (US$2.92 bn)acquisition of Amec Foster Wheeler.
Syndicated lending in Central Europe, the Middle East and Africa reached just US$77.8bn, the lowest total for the first nine months of the year since 2009 and under half the US$164bn raised at the same point in 2016.
The fall was caused by a lack of refinancing opportunities, western sanctions against Russia, depressed oil prices, competitive bond markets and political volatility.
Middle East borrowing is at its lowest level since 2011. Loan volume of US$28.25bn is 60% down on last year's US$71.5bn total for the first three-quarters as persistently low oil prices continued to hamper growth, curbing borrowers' appetite for new loans.
HEALTHY LEVERAGED MARKET
Year-to-date European leveraged loan issuance is 34.23% higher than US$131.77bn for the same period last year, after a busy first half of 2017 bolstered volume as repricings and refinancings dominated Europe's leveraged loan market.
"At the start of the year there was significant refinancing volume as a decline in pricing and a relatively quiet market led a bulk of issuers to improve their existing borrowings," a syndicate head said.
"Subsequently in the third quarter there was a pickup in new money transactions, which depressed overall volume but saw an increased in LBO levels. It has led to a very healthy market and significant new supply has curtailed refi activity."
A 1.4bn loan and a £266m loan for German generic drugmaker Stada STAGn.DE that formed part of a larger loan and bond financing backing its 5.2bn buyout was the largest leveraged loan of the third quarter, followed by a 1.09bn and £200m term loan for Dutch-headquartered bottle manufacturer Refresco RFRG.AS , backing its acquisition of the bottling activities of Canada-based Cott Corp BCB.TO .
The fourth quarter looks set to see an increase in volume as bankers expect to see a fair amount of refinancing and recapitalisation activity as soft-call periods, which protect against improvements to existing borrowings, run out. The pickup in new issuance is also set to continue.
There is a 1.02bn term loan refinancing for French nursing homes operator DomusVi, while French telecom group Altice ATCA.AS and its majority owned telecoms company SFR SFRGR.PA have both launched cross-border loan refinancings totalling 3.657bn to lower borrowing costs and extend maturities.
The LBO pipeline includes 2.5bn-3bn of leveraged loans backing US private equity firm Hellman & Friedman's DKr33.1bn (US$5.3bn) takeover offer for payments firm Nets NETS.CO , as well as US$1.4bn-equivalent euro- and sterling-denominated loans for Blackstone (NYSE:BX) and CVC Capital Partners' buyout of UK payment processing company Paysafe PAYS.L .
Europe could also see increased issuance as it becomes cheaper for borrowers to raise euros, rather than raise dollars and swap back to euros.
"Europe seems very healthy versus the US as it use to be cheaper to issue in dollars and swap to euros but in the past month that is no longer the case, so we could expect to see more transatlantic volume," the syndicate head said.
Deutsche Bank DBKGn.DE tops the third quarter EMEA bookrunner league table with US$31.07bn market share and 87 deals. HSBC HSBA.L is in second place with US$29.24bn and 124 deals, while Bank of America Merrill Lynch (NYSE:BAC) BAC.N is third with a US$28.25bn market share and 77 deals. ($1 = 0.8507 euros) ($1 = 0.7534 pounds)