Top borrowers extend loans to bypass tough market

By Tessa Walsh

LONDON (Reuters) - Europe's top companies are finding ways around 2009's looming refinancing crunch by extending existing loans rather than bringing new deals to an expensive and illiquid market.

Such a move helps companies facing imminent loan maturities by guaranteeing short-term liquidity, also giving them time to wait for the capital markets to stabilize before embarking on expensive loan or bond refinancing [ID:nL1400978].

"Loan extensions frankly buy you time. Amending and extending existing loans is the way forward next year," a senior loan distributor said.

The move also helps banks that are battling high funding costs as companies are willing to increase razor-thin interest margins on existing loans in return for longer tenors.

French drug-maker Sanofi-Aventis (SASY.PA) is the latest company to extend an existing 4.08 billion euro ($5.15 billion) loan and joins French industrial group Schneider Electric (SCHN.PA), which is also extending a 2.0 billion euro ($2.52 billion) loan.

German utility E.ON EONG.DE completed a 7.5 billion euro ($9.46 billion) loan extension in mid November and French buildings materials and glass manufacturer Compagnie de Saint-Gobain (SGOB.PA) extended a 2.04 billion euro ($2.57 billion) credit at end-October.

Bankers are pointing to loan extensions as a key trend of 2009 and expect UK borrowers to be particularly active as companies push out loan maturities to avoid them being classified as short-term balance sheet obligations.

"Next year banks will look at existing deals to accommodate clients refinancing needs," a senior syndicator said.