Allen & Overy’s Corporate Funding Monitor underlines the extent to which corporates have sought to diversify their funding mix.
The firm said that following the financial crisis, a structural shift has taken place in the way that corporates access finance.
The report highlights that, rather than returning to normality, financing is set to become increasingly diversified and assesses the implication of this on the behaviour of both banks and funds.
Key findings from the research include:
- The value of bonds issued globally by corporates (excluding financial institutions and real-estate companies) has nearly tripled in the past 10 years and bonds have increased their share of the funding mix globally from 18 per cent to 29 per cent.
- The biggest change has occurred in the investment grade market, where the relationship between loans and bonds has inverted. In 2004, bond issues by investment-grade corporates were worth about half the value of loans. Ten years later, loans are worth approximately half the value of bonds issued by investment-grade credits globally.
- However, lending remains the dominant source of funding and witnessed something of a revival in 2013 (up 30 per cent). Despite this growth, bonds are expected to settle at a far higher baseline than has been seen historically even if loans continue to rebound.
- Corporates now have more options than ever before as the lines between loans and bonds blur. Companies are looking to a broader range of finance options to meet their varying needs, ranging from private placements to leveraged finance and high-yield bonds, loans from alternative providers, securitisation and new forms of bond guarantees and project bonds to supplement traditional forms of finance.
- Banks are already gearing up for this future, forging symbiotic relationships with funds, selling off portfolios of assets and retooling teams to work as brokers with funds.