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Despite a gathering storm of macroeconomic clouds, global loan issuance managed to keep afloat in 2022.

Loans in 4Q22 reached only USD 856bn, significantly short of recent averages. However, considerable activity in the Americas over the course of the year bolstered the total value of loans raised in the year to date (YTD) to USD 4.6trn, in line with the average over the past 10 years.

The strong showing in the Americas contrasts with those of both the EMEA and Asia-Pacific (APAC) regions, which scored their lowest volumes in the past six and 12 years, respectively, at USD 1.07trn and USD 684bn. Companies in the Americas racked up the fourth-highest loan volume on record at USD 2.85trn.

Global markets currently are giving up gains from recent bear market rallies, despite official inflation statistics appearing to have peaked in the US and Europe. All eyes have now moved to 2023 and the expected impending recession. How well markets fare will depend heavily on whether central bankers can navigate these uncertain waters, and their ability to guide their economies to as soft a landing as possible.

Overall loan totals for 2022 represent an impressive showing for a global economy that has been wracked by soaring inflation following unprecedented levels of quantitative easing during the pandemic, along with central banks’ response in raising interest rates in the months thereafter. The ensuing downturn, along with Russia’s invasion of Ukraine and the Chinese property developer crisis, have been among the litany of events that have left markets reeling from their effects on volatility.

This is expected to continue into 2023, with default rates forecast to rise significantly over the coming year. Moody’s expects global default rates to reach 4.9%, up from 2.6% this year, while S&P estimates US and European default rates reaching 3.75% and 3.25% in 2023, respectively, up from 1.6% and 1.4% in 2022.

Fourth-quarter fallout

APAC struggled the most during 4Q22, racking up only USD 87.6bn, less than half the average seen in the past few years. Meanwhile, loans raised in EMEA in the fourth quarter also came up short at USD 184bn, just over half of a typical quarter. The Americas, while relatively low on issuance at USD 584bn, managed to post a total greater than that of 2020. Note that 4Q22 was the lowest showing in EMEA since 2012, while loan volumes in APAC fell to levels below those in the aftermath of the global financial crisis.

Unconventional pivots

Amid the market downturn, loan issuance in EMEA has pivoted to investment-grade (IG) activity, with 71% of the volume allocated to more risk-averse assets in 2022. However, firms in APAC and the Americas issued a higher proportion of leveraged facilities than in previous years, with only 45% IG in the Americas and 63% in APAC. Although higher-rated assets are more desirable in a downturn, the volume of ratings downgrades has served to increase the number of companies issuing sub-IG. With borrowers having to offer ever-juicier pricing, demand from high-yield (HY) investors remains strong for those deemed to be the right credits.  

Short-term fixes

As 2022 draws to a close, the outstanding debt set to mature this year continues to fall to zero. However, since the third quarter, many of these facilities have merely undergone short-term extensions, with issuers living in hope of improving conditions in the year ahead. As such, deal volume due to mature in 2023 has climbed over the past quarter. There have also been material rises in the 2025 and 2027 maturity buckets globally, which correspond to new issues of three- and five-year deals. Currently, USD 1.47trn worth of debt globally is set to mature in 2023, with outstanding loan volumes peaking as soon as 2024, when USD 1.52trn is in need of repayment.

ESG continues to grow as issuance withers

While ESG has made a retreat from the previous year’s issuance level for the first time, the debt category still managed to climb as a proportion of overall activity, albeit by a slight margin. EMEA retains its leadership of the ESG sector for another year at 23% of all loans, totalling USD 243bn worth of deals complying with ESG criteria. Next, by volume, is the Americas at USD 193bn; however, this constitutes only 7% of all loans signed in the region. In contrast, APAC firms raised USD 88.0bn, accounting for 13% of loans in the region.

New-money volumes falter

Refinancing activity in 4Q22 increased to 65%, its highest level as a proportion of total issuance in the fourth quarter since 2019. However, M&A and leveraged buyout financing slipped to 11% and 2%, respectively, far below their historical averages. Debt-backed M&A has taken a back seat in 2022, with many high-profile, large-size deals steering clear of loan syndication by either postponing the deal or finding another financing route. Given M&A represents the lifeblood of capital markets, thinning supply is likely to extend volume suppression well into next year, and continue until macroeconomic conditions start to turn more favourable.

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