It is not hyperbole to say 2020 was a dismal year for the loan market. The COVID-19 pandemic undermined the loan market, with overall volumes falling more than 60%. However, there were sparks of innovation and boots on the ground that came to support BBVA’s book of business and its designation as Loan House of the Year by LatinFinance.
“With the pandemic, basically, the syndicated loan activity was negatively affected. There was very low volumes of transactions available in the market as syndicated facilities. Clients were in survival mode. Their main priority this past year was (maintaining) liquidity and preserving their financial health,” said Eddy Lacayo, head of corporate lending Latin America at BBVA in New York.
However, with the introduction of more testing and the rollout of vaccines, Lacayo says there is some cause for optimism with mergers and acquisitions becoming a likely source of loan activity as companies look to take advantage of valuations hit by the drop off in business.
Stabilization of markets and the increased coping mechanisms for navigating around the pandemic is already producing some rebounds in liquidity and appetite for high quality assets by banks.
“In terms of market conditions… we started to see pricing pressures and good quality assets. That is healthy and the banks have more appetite,” he said. For the time being loans with three year tenors remains the sweet spot, while Lacayo is “starting to see five-year appetite for a select group of corporates. Some of the sectors we expect to see more activity is in energy and utilities.”
One highlight of the year, Lacayo said, was the creation of a highly tailored $300 million loan facility for US car maker, General Motors. BBVA provided GM with a revolving credit facility that allowed the company to raise local financing in each of its subsidiaries across the region: Mexico, Colombia, Peru, and Chile.
“We came up with a unique financing solution that would provide all their financing needs into one single financing facility in multiple currencies,” he said.
As 2021 unfolds, for loans and other markets as well, the use of sustainable finance is growing with a steadier and louder drumbeat as clients of BBVA seek to go down this financing track.
“One of the themes or aspects we are continuing to push in the region is sustainability…. Latin America is still a little premature in terms of how the market has developed that alternative financing. We think there is a lot of room to improve and penetrate. I would expect to see more of that in 2021 and 2022 as the whole world shifts more toward a sustainable market,” he said. – LF