In a session on ‘Credit Worthiness’ at the Association of Corporate Treasurers Annual Conference last week, Terry Pritchard of S&P showed how in Europe:

• corporate credit quality has improved since Q313
• there has been little sign of corporate under investment
• buy backs are ticking up
• net loan issuance to corporates in Eurozone was negative as disintermediation started:
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• bond issuance gained an increasing share:

         

• the proportion of capital market funding to in European countries is growing, but still far smaller than in US:
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• European Private Placement is growing (€3.2 bn in 2012 v. €4.2 bn in 2013).

Smurfit Kappa

This was followed by a presentation by Paul Regan, Group Treasurer, Smurfit Kappa who showed how they too had diversified their funding as they refinanced, see figure:

Source & Copyright©2014 - Smurfit Kappa

Surfit Kappa impressively moved from highly secured financing with an annualised interest cost of €275 and subordinated debt of €370m; to unsecured debt, annualised interest cost of €155m and no subordinated debt. Not only this, their share price increased significantly, see figure:

 and their credit rating improved from BB- to BB+.

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CTMfile take: The banks will continue to lose out in corporate financing as Basel III bites and as corporates look to dis-intermediate their financing.