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S&P notes slow growth in banking disintermediation in Europe 

October 13, 2015

Standard and Poor’s  forecasts that mid-market companies in Europe (eurozone plus the UK) will need between €2.7trn and €3.1trn over the next five years to honour their refinancing and to fund growth. Capital markets funding  will become a growing complement to bank lending in Europe as disintermediation continues, especially for mid-market companies, suggests a new report from the ratings agency. Nonbank funding of European companies grew to over €38bn in 2014, including private placements and direct lending. While this represents only a small percentage (less than 0.5) of corporate loan funding in Europe relative to the €70bn primary volumes of issuance in the European high-yield market in 2014, it is still substantial.

According to Standard & Poor’s credit analysts, alternative funding sources for mid-market companies remains fragmented across Europe. For the time being, bank loans are still the main pillar of corporate debt funding in the region. Yet, bank funding disintermediation—where corporations obtain debt funding from sources other than banks--is broadly gaining ground says the ratings agency. In the UK, bond financing had increased to 29% of corporate funding by the end of 2014 from 22% in 2006. “ In France it increased to 22% from 16%, and in Italy to 12% from 7% over the same period. We also see investors in pan-European private placements (PEPP) stepping up their exposure to companies with investment-grade and cross-over credit characteristics,” notes in the paper.

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