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Debt Market Update Q1 2019

Debt Market Update Q1 2019

The first quarter of 2019 saw heighted global market volatility in the midst of geopolitical developments, including the US-China trade war and the Brexit process. In response, market participants showed escalating caution relating to the outlook for debt markets. This was highlighted in early March with the US Federal Reserve abandoning its plans for further interest rate hikes after three years of tightening monetary policy, as the US economy showed signs of weakening.

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Debt Market Quarterly Update

Key themes

  • Market conditions – Continued volatility with mounting pressure for RBA action in 2019.
  • Australian bank debt market – refinances comprise majority of volume with average transaction size the largest since Q2 2015.
  • Offshore bank debt funding – strong appetite for Australian corporate debt from offshore banks – in particular Asian-based banks.
  • Australian domestic bond market – quietest Q1 period since 2016, partly attributable to the influx of private debt capital allowing borrowers to directly access capital long-term debt capital markets investors.
  • USPP – marginally higher recent volumes from Australia and NZ, however remains lower than prior 12 months.

Notable transactions

Notable syndicated transactions for the quarter included:

  • Amcor Ltd refinanced US$4.5 billion ahead of its proposed merger with the US-based Bemis Co. over tenors of 3, 4 and 5 years.
  • Qantas Airways Ltd increased its three tranche refinancing to A$1.33 billion from the original A$1.18 billion under a general syndication involving 36 banks. Pricing ranged from 105 to 115 basis points with the revolving debt facility basing margins on the company’s Moody’s corporate credit rating of Baa2.
  • Metcash Trading Ltd went to market for a multi-tranche facility comprising tenors of 3, 4 and 5 years with margins tied to their senior leverage grid. Initial margins for the facilities are 145, 160 and 175 basis points respectively.
  • IX Infrastructure Pty Ltd, a special purpose vehicle of Keppel Infrastructure Trust, has raised $607 million to assist with the acquisition of Ixom Group, which is a leading infrastructure group in Australia and New Zealand.
  • Canadian investment firm Brookfield Capital Partners’ is seeking to raise A$2.15 billion as part of its planned $4.35 billion acquisition of Healthscope Limited via its SPV, VIG Bidco Pty Ltd. Seven underwriting banks are seeking commitments from banks after launching a senior syndication in early March with initial talk on margins of 400 bps.

Debt Market Quarterly Update

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KPMG International Cooperative (“KPMG International”) is a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm.

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