Table of Contents

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Executive summary

The changing loan market
Future challenges for loan banks
The report

Chapter 01

The current lending model

  • Relationship lending - a flawed paradigm
    • What is relationship lending?
  • Viewpoint: Relationship lending - Head of loans at a German bank
    • The case for relationship lending
    • The different kinds of relationship lending
    • The flaws in relationship lending
  • Tight pricing endangers the relationship model
    • Redefining loan pricing
    • Loss of protections
  • Viewpoint: Falling pricing -
  • Head of loan distribution at a French bank
    • Lending down the credit curve
    • Inverting the loan pyramid
  • Modelling relationship value
  • Viewpoint: Modelling the value of a relationship - Head of syndicated loans at a European commercial bank
    • Winning ancillary business - a reality check
  • The return of M&A financing
  • Changing the relationship lending paradigm
    • The Russian market
  • The need for a pan-European footprint
    • The effect of the euro
    • European market dynamics
  • Viewpoint: The need for a Europe-wide lending model - Global head of loans at a UK commercial bank
    • The UK market
    • The need for pan-European reach
    • The need for clear strategies
    • Market share in Europe
    • Market share in the US
  • Facing the future
    • Danske Bank exits the market
    • Dresdner Kleinwort focuses on the home market
    • Challenges ahead

Chapter 02

The search for yield

  • Lending to lesser-rated companies
    • Crossover credits
  • Viewpoint: Crossover credits -
  • Head of loan sales and trading at a European bank
  • Lending to smaller companies
    • The mid-cap market in Europe
  • Lending to emerging markets
  • Russia
    • The Yukos affair
    • Market growth continues
    • Flawed relationship model
    • TNK-BP
    • Rosneft
    • Norilsk Nickel
    • History repeats itself - but who notices?
  • The Middle East
    • Lending to financial institutions and corporates
    • Islamic loans boom
      • Obstacles to Islamic financings
    • Country and sector limits
  • Turkey delights
  • The limits of yield

Chapter 03

The leveraged buyout/structured finance boom

  • New classes of investor
    • Private equity houses
  • CLOs
    • Mezzanine investors
    • Hedge funds
    • Pension funds
    • Long-only investors
  • Viewpoint: The impact of new investors - European head of leveraged origination at a German commercial bank
    • Effect on banks and the European loan market
    • What do these new players want?
    • Growth in all parts of the capital structure
    • Two-speed Europe: institutions vs banks
  • Viewpoint: Debt instruments and new investors - Head of syndication at a US bank
  • Structured lending - the other boom
  • Viewpoint: Structured lending
  • Head of distribution at a UK bank
    • Crossover credits
  • Infrastructure financing
  • Convergence of loan classes
    • Infrastructure loans valuations need reassessing
      • Leveraged buyouts and infrastructure financing serve different purposes
      • Stretching the definition
    • Macquarie’s innovation - accretion swaps
  • Real estate financing
  • Corporate M&A - the rise of the bridge loan

Chapter 04

Implications for banks

  • Risk appetite and bookrunning skills
    • Handling large underwritings
    • Bookrunning skills
    • Distribution skills
    • The USA comparison
  • Flexibility and innovation
  • Platforms and people
    • Primary and secondary market capability
    • Star performers - it’s a seller’s market

Chapter 05

Making money when the cycle turns

  • Doing the right type of deal
  • Loss minimisation - credit default swaps
    • Loan Credit Default Swaps
    • Cablecom reveals problems
    • Private versus public investor conflict
    • US growth in LCDS shows the Europe the way
  • Divergence from previous credit cycles
    • Erosion of covenant protection
    • Increase in back-ended debt
    • Disappearance of the buffer zone
  • Will Basel II fan the flames?
  • Different investor types have different views on defaults
  • Turning a profit when the bubble bursts
  • Viewpoint: Making money in the downturn - A distressed debt trader at a US investment bank
    • Providing rescue liquidity
    • Trading in the secondary market
    • Workout and restructuring capabilities
    • Distressed trading
  • S&P recovery ratings

Chapter 06

The loan bank of the future

  • Pan-European business
  • Relationship lending - from shamanism to science
    • Mark-to-market in relationship modelling
    • CDS in relationship modelling
    • Establish a clear time frame for relationships to pay
    • Match lending targets with ancillary business skills
  • European leveraged finance - a major profit centre
    • Prioritising leveraged finance
    • Becoming product neutral in the subordinated debt space
    • Willingness to underwrite large deals
    • Developing deep bank and non-bank distribution capability
    • Developing strong secondary capability
  • Strong secondary trading capability
  • Strong credit culture and risk management capability
  • The effects of institutionalisation
    • Structural and pricing flexes
    • Bookbuilding vs bookrunning
    • Adaptability is key
  • The right lending platform
    • Origination and distribution capabilities
  • The continuing search for yield

Appendix

  • List of tables and figures
  • Table 1.1: EMEA refinancings, 2001
  • Table 1.2: EMEA refinancings, 2002
  • Table1.3: EMEA refinancings, 2003
  • Table1.4: EMEA refinancings, 2004
  • Table1.5: EMEA refinancings, 2005
  • Table 1.6: Top bookrunners of EMEA loans, 2006
  • Table1.7: EMEA league table 2001
  • Table 1.8: EMEA league table 2002
  • Table1.9: EMEA league table 2003
  • Table1.10: EMEA league table 2004
  • Table1.11: EMEA league table 2005
  • Table1.12: EMEA league table 2006
  • Table 1.13: US league table 2001
  • Table 1.14: US league table 2002
  • Table 1.15: US league table 2003
  • Table 1.16: US league table 2004
  • Table1.17: US league table 2005
  • Table 1.18: US league table 2006
  • Table 4.1: Top bookrunners of
  • EMEA bespoke structured loans, by volume Q1 2006
  • Table 4.2: Top bookrunners of EMEA bespoke structured loans, by issue, Q1 2006
  • Table 4.3: Top bookrunners of EMEA bespoke structured loans, by volume, H1 2006
  • Table 4.4: Top bookrunners of EMEA bespoke structured loans, by issue, H1 2006
  • Table 4.5: Top bookrunners of EMEA bespoke structured loans, by volume, Q1-Q3 2006
  • Table 4.6: Top bookrunners of EMEA bespoke structured loans, by issue, Q1-Q3 2006
  • Table 4.7: Top bookrunners of EMEA bespoke structured loans, by volume, FY 2006
  • Table 4.8: Top bookrunners of EMEA bespoke structured loans, by issue, FY 2006

Appendix tables:

  • A1: EMEA loans 2006
  • A2: EMEA loans 2000-2006
  • A3: EMEA emerging market loans, 2006
  • A4: EMEA loans 2000-2006
  • A5: EMEA M&A loans 2006
  • A6: EMEA M&A loans 2000-2006
  • A7: EMEA mezzanine loans 2006
  • A8: EMEA mezzanine loans 2000-2006
  • A9: EMEA PIK loans 2006
  • A10: EMEA PIK notes 2000-2006
  • A11: EMEA project loans 2006
  • A12: EMEA project loans 2000-2006
  • A13: EMEA refinancings 2006
  • A14: EMEA refinancings 2000-2006
  • A15: EMEA second lien loans 2006
  • A16: EMEA second lien loans 2004-2006
  • A17: EMEA sponsored loans 2006
  • A18: EMEA sponsored loans 2000-2006
  • A19: EMEA trade loans 2006
  • A20: EMEA trade loans 2000-2006
  • A21: European leveraged loans 2006
  • A22: European leveraged loans 2000-2006
  • A23: Western European loans 2006
  • A24: Western European loans 2000-2006
  • A25: Middle East loans 2006
  • A26: Middle East loans 2000-2006
  • A27: Middle East project finance 2006
  • A28: Middle East project finance 2000-2006
  • A29: French loans 2006
  • A30: French loans 2000-2006
  • A31: French LBO loans 2006
  • A32: French LBO loans 2000-2006
  • A33: German loans 2006
  • A34: German loans 2000-2006
  • A35: German LBO loans 2006
  • A36: German LBO loans 2000-2006
  • A37: Italian loans 2006
  • A38: Italian loans 2000-2006
  • A39: Russian loans 2006
  • A40: Russian loans 2000-2006
  • A41: Spanish loans 2006
  • A42: Spanish loans 2000-2006
  • A43: Turkish loans 2006
  • A44: Turkish loans 2000-2006
  • A45: UK loans 2006
  • A46: UK loans 2000-2006
  • A47: UK LBO loans 2006
  • A48: UK LBO loans 2000-2006
  • Figure 1.1: Syndicated loans EMEA borrowers, 2002-2005 (%)
  • Figure 1.2: Syndicated loan volumes, 2000
  • Figure 1.3: Syndicated loan volumes, 2005
  • Figure 1.4: Syndicated loan volumes, 2006
  • Figure 2.1: Russian borrowers, 2001-2006
  • Figure 2.2: Middle East borrowers, 2003-2006
  • Figure 2.3: Middle East borrowers by use of proceeds, 2006
  • Figure 2.4: Turkey borrowers, 2002-2006
  • Figure 2.5: Turkey borrowers by use of proceeds, 2006
  • Figure 3.1: EMEA leveraged loans, 2004 and 2006
  • Figure 3.2: European LBO financing structures, 2000-2007
  • Figure 3.3: EMEA second lien loans, 2004 and 2006
  • Figure 3.4: EMEA mezzanine loans, 2004 and 2006
  • Figure 3.5: EMEA high-yield bonds, 2004 and 2006
  • Figure 3.6: EMEA PIK loans, 2004 and 2006
  • Figure 3.7: European M&A-linked syndicated loans, 2004 to 2006