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Corporate Funding Monitor 2015

Structural shift in financial markets multiplies corporate funding options

?Allen & Overy said today that while the total value of finance, across loans, bonds and equity, provided to business globally has hit a record level, exceeding USD6 trillion for the first time in 2014, this is indicative of a structural shift rather than a return to pre-crisis normality.

The legal practice’s Corporate Funding Monitor has highlighted a fundamental change in the way in which corporates (excluding financial institutions and real estate companies) access finance. Thomson Reuters data shows the type of financial products used has altered significantly – with the value of bonds issued by businesses increasing by 70% since 2007 to over USD1.50tn, despite a 10% year-on-year fall in 2014.

The value of loans made globally to corporates has exceeded the pre-crisis peak of USD3.87tn, totalling USD3.93tn in 2014.  However, while loans remain the predominant source of funding for corporates globally, accounting for 63% of the total, it is apparent that it is not just banks that provide them.

Research conducted by Allen & Overy during 2014 showed that, while, on average, bank lending remains the single biggest source of funding among European corporates, alternative finance now accounts for 41% of their total funding mix. Furthermore, the size of deals that alternative providers have taken on has been steadily increasing from around EUR100 million–EUR150m to around EUR300m-EUR350m. This trend will continue in 2015.

As well as observing increasing levels of bond and alternative finance, the data show investors have also been reacting to the new landscape – searching further afield for yield. This increased supply of credit saw the value of bonds in Africa/Middle East/Central Asia increase by a third in 2014 to USD20bn – surpassing the 2007 pre-crisis peak of USD17bn for the first time.

Angela Clist, co-head of Financial Institutions Group at Allen & Overy, commented: “Corporates have more options than ever before, and there is no ‘one-size fits all’ approach. We expect markets to continue evolving, adding new dimensions to corporates’ decision making matrix. As competition continues to increase not only in the type of products corporates choose, but locations where they source funding and the players who ultimately provide it, banks have an increasingly pivotal role to play in facilitating access to this broader and more global market.”

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