European Companies Are in Distress
“If this trajectory continues, we would expect to see increased pressure on liquidity and further tightening across the credit markets.”
Corporate distress in Europe’s biggest markets is near a two-year high as inflation and higher interest rates squeeze indebted firms. Companies in Germany, the U.K., France, Spain, and Italy are the most distressed since August 2020, according to the Weil European Distress Index. The study aggregates data from more than 3,750 listed European firms.
“If this upward trajectory continues, we would expect to see increased pressure on liquidity and further tightening across the credit markets, with some businesses struggling to access finance and ultimately facing defaults,” said Neil Devaney, a partner and co-head of Weil, Gotshal & Manges’s London restructuring practice. “The economic outlook has become significantly more challenging.”
Businesses in Europe are struggling with rampant inflation, with firms forced to pay more for everything from fuel to labor. The resulting tightening of monetary policy by the Bank of England and the European Central Bank (ECB) is also making it more expensive for companies to refinance.
Of the five European countries studied by Weil, Germany is the most distressed, followed closely by the U.K., with companies from the retail and consumer goods sector leading the decline. To assess distress, Weil looked at metrics including firms’ ability to access liquidity, changes to valuations, and overall market conditions.
EMEA
There were 10 issuers across 11 tranches in the market in Europe on Tuesday, for a minimum volume of 9.37 billion euros (US$9.9 billion).
- Turbulence in Europe’s primary bond market is leaving the door ajar for arrangers of corporate loans and Schuldschein to pitch deals.
- Some of the world’s largest climate finance groups are urging U.K. Prime Minister Boris Johnson’s government not to classify natural gas as a green investment.
- Tikehau Capital is looking to raise 1 billion euros for a new fund offering loans with high returns to riskier firms, as soaring inflation and the threat of economic slowdown raises the credit risk of European companies.
Asia
A record selloff in Fosun International’s dollar bonds shows that financial stress among China’s property developers is shifting to the country’s other weaker borrowers.
- The unprecedented spate of bond buying by the Bank of Japan has brought it to a place it almost certainly never envisaged when it started quantitative easing as a “temporary” measure back in 2001—owning virtually half of the JGB market.
- Babel Finance, the distressed crypto lender that froze withdrawals on Friday, said it won a reprieve on debt repayments as it battles to survive a tumultuous slump in cryptocurrency markets.
Americas
Wall Street expects bond issuance from blue-chip firms to be light—or even nonexistent—this week, as borrowing costs surge and recession fears mount.
- U.S. Treasuries slipped Tuesday, led by long-end bonds, after markets were closed Monday in observance of the Juneteenth holiday.
—With assistance from Irene García Pérez.
Copyright 2022 Bloomberg. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.