Corporate Financing Analysis - Bridge Loan Transition Towards Inorganic Growth Financing Tool To Continue - 29 JAN 2018

As the global economy continues to stabilise we expect the shift in bridge loan pricing away from refinancing purposes and towards acquisitive growth agendas to continue in 2018. Within this transition we see activity levels remaining relatively flat over the year ahead, with any risks weighed to the downturn and a potential slowdown in such deals ( see ' Economic Stability Bad News For Bridge Loans ' , September 20 2017). As the volume of deals used to refinance lessens, the interest in deals to support acquisitive growth will rise - albeit not necessarily at an even rate. Within this transition, we expect to see activity levels weighed down by the expected hike in rates in key markets across the course of this year, a factor which will increase both the costs and level of risk involved with bridge loan deals. At the time of writing, BMI is forecasting two hikes by the US Federal Reserve in 2018 and two in 2019 which will, in turn, serve as a catalyst to similar hiking activity in other markets.

Risky Business

BMI notes that the appeal of bridge loan facilities is that they fill a financing gap on a short-term basis and make the refinancing of bumper loans or large-scale acquisitions possible when they otherwise might not have been. Another benefit is that they can also be closed swiftly - often within under a month. This comes at the price of borrowers taking on increased pace of business via such deals - they are, after all, not a long-term financing solution. This means paying higher - both in terms of interest rates and loan origination fees - than those agreed for long-term facilities. Despite the heightened level of risk involved, Bloomberg data show that there were 11,979 bridge loan deals priced globally in 2017 worth a combined USD4,152,852mn. While down marginally by deal volume from 12,058 facilities secured a year earlier in 2016, deal value was up y-o-y from a level of USD3,978,795mn to reach its highest level since 2014 (USD4,256,877mn). As of data correct to January 12, there have been 128 bridge loan facilities priced globally so far in 2018 worth a combined USD53,110mn.

A Steady Market
Global Bridge Loan Facilities Priced By Deal Value, USDmn
Source: Bloomberg

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