Main reason the State of health of the banks

EDF announces the first loan to individuals for fifteen years, Danone which increases its capital of 3 billion euros 2 times more than expected , ArcelorMittal launches a new EUR 2.5 billion bond issue... In recent weeks, French companies are massive markets.

Main reason: the State of health of the banks. Faced with the difficulties of major credit institutions, companies are turning to other sources of funding. And the sudden rally of market shares, for a few months, made only accentuate their precipitation.

According to Thomson Financial data, the amount accumulated debt bond, convertible and capital lifted since the beginning of the year by European companies (included banking) is approximately 1,200 billion, or 30 more than a year last on the same date. For only bond, the amount exceeds already lifted in 2008. In Europe, the movement is particularly sensitive. It considers that 60 of the debt of companies is Bank debt. Markets are culturally a most important source of funding for businesses across the Atlantic.

However, undermined by several quarters of losses, banks tend to reduce their commitments and lend sparingly. And foreign banks from the market. "Companies have become aware that banks can no longer be their primary source of funding," notes Sophie Javary, partner-Manager and co-lead for the activity of restructuring of debt in Europe for Rothschild & Cie. They must further diversify their sources of funding, because there is a real oligopolistic situation of banks in some markets, where bank financing has become very expensive, less competitive than bond markets.

In fact, an agreed credit currently costs on average 200 to 300 points above the reference rate (Euribor) base, when a bond issue stretches 150 to 500 basis points, with an average remaining competitive. The "spreads" (spreads) are very high compared to those observed during the years 2006-2007, a few dozen basis points, but because of the decline of the reference rates, final rates remain total

quite low.

Safety mattress

The loan of 1 billion announced by EDF for individuals is another illustration of the diversification of sources of funding sought by the companies, even if the clumsiness of such a transaction makes it difficult to replicable. In comparison, the cost of capital is always higher than debt, but the companies anticipate an inflation in the months to come and prefer to take the lead. So they know that the window open on the markets may now close in the second half.

The most worrisome phenomenon which explains these calls to the market, is the fact that companies are now incorporating in their forecasts much more pessimistic scenarios of decline in activity for 2010. While at the beginning of the year, is attended fundraisers designed primarily to reduce the debt contracted in the previous cycle, including in procurement (Orascom for Lafarge, Absolut for Pernod Ricard, ArcelorMittal), it is now for them to build security for a new degradation mattresses. This is particularly the case of Saint-Gobain, whose credit deadlines were not especially tense.

The welcome given previously by the increases in capital markets has been rather good, which should encourage those who are not yet started to appeal to their shareholders. The haircuts tend to shrink slightly, from about 40 in early this year, 30-35 for the last (Imerys) operations. Issuers also know that the current stock market rebound is fragile. Other operations are therefore to be expected, both in real estate than in building materials and industry in the broad sense.