With Europe standing at a critical juncture, Zachary Swabe and Jakob von Kalckreuth evaluate its evolving corporate funding markets, with particular consideration to the potential implementation of a capital markets union. They also consider current and future opportunities across high yield, syndicated loans and direct lending.
Major forces are bearing down on Europe right now; some structural and some fleeting. In an environment where a Trump tweet can turn markets, it is hard to predict market sentiment and make relative value judgements between the US and Europe from day to day.
Instead, we focus on more structural market dynamics. These include the continued disintermediation (or maturation of Europe’s corporate lending ecosystem), the strong fundamentals and low default rates of high yield, syndicated loans and direct lending, as well as the potential impact of a savings and investments union (SIU) should one come to fruition.
Maturing credit ecosystem
European companies source a much higher proportion of funding from banks than their US counterparts. Estimates vary, but most place European bank funding at 85% vs. 50%-55% for the US.
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