Issue: 1252 - 27 April 2012

French banks are increasingly the syndicated loan market’s scapegoat as lenders react to a sharp contraction in the product to a near two decade low. 

With EMEA volumes down as much as 57% year on year in Q1, rival banks have questioned French institutions’ capacity to lend outside euros and their appetite for aggressively priced deals. Strikingly, some have even begun marketing ‘no French’ transactions in an attempt to lure borrowers back.

"I’m looking at one acquisition situation at the moment and I’m pitching it as ‘no French banks’ to make it a competitively priced transaction," said one senior loans banker. "We won’t have any French banks because it’s in dollars and the French can’t do dollars as cheaply as others."

The anti-French initiatives come after one third of the first quarter’s requests for proposals failed to yield new loans. This was partly because borrowers were sitting on large cash piles and partly because they viewed the terms on offer as unfavourable, another senior banker judged.

The sniping also comes despite French participation in the CEEMEA region’s largest deal of the year, a new $2.2bn loan for Russia’s Rosneft. While BNP Paribas, Crédit Agricole and Société Générale were all absent from the borrower’s $2bn deal in December 2011, each is participating in a new five year facility split between a $1.05bn tranche and a €845m piece — BNPP as bookrunner and mandated lead arranger (MLA), alongside Bank of Tokyo-Mitsubishi, BayernLB, Mizuho, Morgan Stanley, Natixis, Nordea, RBI, SMBC, UniCredit and WestLB, and CA, SG and SG-owned Rosbank as lead arrangers alongside Barclays, Citi, DNB Bank, DZ Bank and JP Morgan. Top tier tickets are $150m or €150m, with all-in pricing of 300bp.

With the French participants all lending exclusively to the euro tranche, critics cited the deal as evidence of their rivals’ lack of capacity outside the European currency — though this is somewhat contradicted by BNPP’s role as one of three banks in a $2bn bridge loan for another Russian credit, MegaFon, last week.

The Rosneft deal has proved controversial in other ways too. The borrower came under fire from lenders after approaching the market in January for a $2bn loan with a sub-200bp margin just a month after sucking the same amount out of the market in a deal tightly priced at 185bp all-in.

Rosneft, rated BBB-/Baa1, responded by lowering its requirement to around $1.5bn and lifting its margin to 240bp, a move that was decisive in attracting at least two of the three French banks back to the credit.

Quel horreur

Loans officials at leading French banks were shocked by the anti-French development. "It’s bizarre that deals are being sold as having no French banks involved," said a banker at one of the country’s biggest lenders. "Take Rosneft. It’s not a case of ‘those evil French banks are making us pay more for the deal’. It was necessary because they returned to borrow so quickly."

"It’s not just the French banks that have got issues with their balance sheets," the banker added.

All three major French banks also dispute that they ever left the Russian market. "The idea that the French banks aren’t lending is just a myth," said a banker at a French house. "Two of my main competitors are French. You can’t get away from them."

French banks were present in 78.5% of all deals signed in 2011, according to Dealogic — down from 95.7% in 2009 and 91.5% in 2010. But the figure has risen again to 85.6% this year.

Not all lenders subscribe to the anti-French line. "It’s very heartening that the French are now back because of how much it strengthens the bank pool for Russian borrowers," said one senior banker. "They’re back in action with a splash and what better place to start than with a landmark deal?"

"It’s extremely good news to have the French banks back. They left a void last year," added a second banker.

Some bankers attribute the market’s weakness to borrowers rather than lenders, meanwhile. "There are lenders out there. It’s the borrowers that are far less active," said a London-based loans banker. "Sure, bank capacity has shrunk — but it has not shrunk as much as the market has, and pricing will tighten as banks start competing more aggressively."

Credit Suisse: ‘Conditions ripe for private deals’