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ifre.com LIABILITY MANAGEMENT The age of maturity


The escalation of the sovereign debt crisis has led some of Europe’s political leaders to talk of an age of austerity. But for the continent’s corporate treasurers, there is a different concern: as time elapses their debt profiles are steadily maturing. For a solution, many are turning to liability management. David Rothnie reports.


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etween now and 2013, approxi- mately €556bn of corporate debt will mature, according to Thomson Reuters. Of that, roughly half relates to bonds that will mature by the end of 2011 and have been extended, leaving a pipeline of more than €250bn requiring refinancing. The biggest spike is in 2013, when €172.3bn of outstanding bonds will mature. That is focusing the minds of corporate treasurers and debt capital markets bankers alike. Welcome to the age of maturity. Despite the recent sovereign crisis that has hit spreads, the cost of funding remains attractive for the right company, according to bankers. “The all-in-cost of funding is only a factor driving liability management exercises,” said John Cavanagh, managing director and head of liability management for EMEA at Bank of America Merrill Lynch. “Other arguably more important factors include market access, companies seeking to extend their redemptions and diversifying their


European corporate loan redemptions €bn


150 125 100 75 50 25 0


Source: Barclays Capital


funding, and companies taking a more prudent approach to balance sheet management.”


Wake-up call


The trigger for this prudence was the seizure of markets following the collapse of Lehman Brothers in September 2008. Until then, treasurers had started to take refinancing for granted, assuming that tight spreads and low interest rates would continue indefinitely. The closure of markets was a wake-up call. Interest rates remain at historic lows and corporate bond spreads have snapped back, making for low funding levels. Yet with volatility high and markets ebbing and flowing to the sovereign crisis on a daily basis, treasurers can no longer afford to be complacent. “When markets closed following the collapse of Lehman Brothers in 2008, it reminded treasurers that there certain are windows of opportunity for funding which can close at any time,” said Mark Lewellen, head of European corporate origination at


Barclays Capital. “This is focusing minds on liability management and extension of debt maturities.”


Companies want to reduce maturity spikes and push out debt, whether through buybacks or exchanges. Ratings agencies are also taking a longer term view. There has been a redefinition of what is a benchmark size for bond issuance. Previously, companies would regularly tap markets for €3bn in a single tranche, but now it is more usual to issue in smaller chunks, of say €500m, as companies look to diversify the duration of their debt. “After the crisis, when the market was closed to everyone, issuers took the view that they did not want huge financing risk so sought to slice the top off their four biggest exposures,” said Stephanie Sfakianos, head of debt restructuring at BNP Paribas. “People want to tackle their exposure spikes earlier.”


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With companies taking a pro-active approach to managing their debt profiles, and an uncertain outlook for interest rates, liability management exercises are on the rise. Last year was a bumper year for liability management exercises: the world’s biggest financial institutions undertook a massive restructuring of their debt, as government-backed programmes enabled them to buy back debt and exchanging at below par. According to estimates from Bank of America Merrill Lynch, there were €85bn worth of transac- tions relating to liability management exercises conducted last year, almost double the previous high of €46bn in 2006. With financial institutions taking a pause from the market, it is now corporates’ turn to wrestle with their capital structures and extend the maturities of their debt at relatively little cost. In doing these liability management exercises they are encroaching on territory that has traditionally been the preserve of financial institutions.


June 2010 | ifr Top 250 Borrowers | 27


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