Capital markets loan activity continued to struggle in the third quarter of 2023, as issuers in the Americas and Europe held off from tapping markets, while interest rates appeared to reach their peak. Meanwhile, activity in Asia has been hampered by China’s ongoing property crisis, leading the World Bank to slash its growth forecasts for the region’s largest economy. The result is that both quarterly and year-to-date (YTD) issuance placed significantly below global historical averages.

Despite a relatively busy September, which showed faint signs of a possible recovery, EMEA’s 3Q23 issued volume of USD 144.8bn was the lowest figure in the previous five years. The region’s total was 47% below the 2018-22 average and 48% below 3Q22 total volume.

With macroeconomic conditions still challenging, third-quarter volume in the Americas (USD 440bn) was 24% down on the average. While the total held up better than at the height of the pandemic in 3Q20 (USD 316bn), it still marked a 35% decrease against year-on-year (YoY) comparisons. APAC companies managed to get USD 155bn, 36% below the average.

The 3Q23 poor results have continued the year’s downtrend. EMEA 9M23 issuance volume amounted to USD 675bn YTD, 29% below the average for 2018-22, while APAC 9M23 issuance totalled USD 465m YTD, 21% short of the average. The Americas’ 9M23 result looks the best of a bad bunch, coming in at USD 1.759trn YTD, but still 18% below the average and 23% down on the same period last year.

Refinancing eases slightly, but still dominates global issuance

Persistent high interest rates are not conducive to loan issuance in order to finance acquisitions and leverage buyouts (LBOs). In this environment, therefore, the market has been dominated by companies that need to extend maturities, with a trend towards refinancing deals. In 3Q23, 62% of money originated was spent on refinancing, a slight decline from 65% in the previous quarter. In total, refinancing hit USD 436bn globally.

Leveraged loans for financing LBOs amounted to USD 34.8bn globally, or 5% of the total, very close to 4% in 2Q23 and 5% in 3Q22. Other types of acquisition accounted for 9% during the quarter, lower than the figure of 11% in 2Q23 and 12% in 3Q22.

Tenors continue to shorten in Americas and EMEA, but tick up in APAC

Hoping to refinance in the future on better terms, borrowers who have come to the market in 2023 YTD have proposed shorter maturities than in previous years, especially in the Americas. The average tenor for loans in the Americas has reached 3.97 years YTD, its lowest level in six years and considerably shorter than 5.09 years in 2021, when loan market activity in the region peaked.

EMEA historically has the longest average tenors among the three regions, but it has also witnessed a similar trend this year as the Americas. The average tenor for EMEA loans in 2023 YTD is 5.52 years, with third-quarter figures pulling the figure down slightly from 5.6 years recorded at end-1H23. The number is also shorter than 6.05 years seen in 2022, and below the previous five years.

On the other hand, APAC issuers managed to extend their average tenor to 5.11 years, putting them at their longest term since 2019. The number is now higher than the average of the past six years of 5.06 years.

Maturity walls loom

In a year dominated by refinancing and amend-&-extend deals across the globe, maturity walls appear different for each region. Lengthening average tenors in APAC indicate attempts to kick the can down the road and postpone fast-approaching maturities. The peak is set to happen as soon as 2024 and 2025, when USD 486bn and USD 411bn, respectively, reach maturity.

In EMEA, loan maturities are relatively well spread between 2024 and 2028, and amounts ranging from USD 419bn to USD 470bn (2024) set to fall due each year.

The Americas situation appears the most comfortable once the maturity wall has peaked in 2028 although there is still USD 584bn set for maturity in 2024.