Bloomberg: Corporate lending rates in Europe are rising

European companies may find it difficult to negotiate the most favorable interest rates usually offered by the relationship-based corporate lending market, as inflation and tighter monetary policy begin to hit their financiers’ pockets.

Prices are likely to rise for corporate borrowers in the near future, said Carlo Fontana, head of the global consortium UniCredit SpA. “The cost of banks’ capital has risen, but it has not yet spread,” he said.

The first signs of rising borrowing costs were seen in the bond market, with corporate issuers paying almost double the amount in the second quarter compared to the first for five-year euro transactions.

The average pricing of five-year Schuldschein bonds, a niche debt market used mainly by German-speaking companies, has already jumped about 29% in the second quarter from the first.

The Austrian utility company EVN AV has the second Schuldschein of the year with 105 to 120 basis points above the average trades for a 13-year installment, compared to the 70 basis points paid for a 12-year period just two months ago.

BBB lenders offer banks a premium relative to pre-Covid pricing levels, said Hedi Ben Salem, head of corporate lending for Europe and Asia at Banco Bilbao Vizcaya Argentaria SA, and the services sector. utility is particularly affected by rising commodity prices.

“Some utilities have called for additional liquidity lines at a time of great uncertainty around the sector,” Salem said. “This had the direct effect of shifting the balance of supply and demand in favor of the banks and led to an overall increase in pricing for the sector.”

Higher borrowing costs for business loans would be a turning point from the beginning of the year, when issuers enjoyed discounts on pricing after the effects of Covid weakened. It would also be contrary to market expectations at the end of last year, when 64% of respondents believed that pricing would maintain the downward trend from 2021.

In addition to inflation and tighter monetary policy, Russia’s invasion of Ukraine in February has also made banks more cautious.

“I think pricing a transaction in 2022, and especially after February 24, needs increased due diligence and adjustment,” said Lucie Campos Caresmel, head of Credit Agricole Corporate & Investment Bank EMEA corporate lending.