After a slow start this year, lending activity is expected to increase as companies seek financing for M&A, even if it is at higher rates.

Lending activity in Latin America is expected to accelerate in the second quarter of 2023, led by increased demand to finance mergers and acquisitions, analysts say.

“A big part of syndicated loans [activity] this year is going to come from M&A activity in the telecommunications and power sector,” says Sam Bordereau, head of loans syndication for Latin America at Scotiabank in New York.

That would come after a sluggish start to the year. A rise in interest rates since the US Federal Reserve began a tightening cycle in early 2022 to 4.75% in February from 0.25% has pushed up the cost of money.

“An investment-grade name could borrow at an average rate of 4% to 4.5% two years ago,” Bordereau says. “Today it is going to be closer to 6%.”

In the first six weeks of this year, there were only two deals in the region for a total of $2.5 billion, a sharp drop from 22 deals for $5.1 billion in the year-earlier period, according to Dealogic.

Photo: Sam Boredereau

James Neate, head of corporate and investment banking at Scotiabank, says the higher rates have made it hard for companies to bring together large groups of lenders to agree on pricing, while banks have retrenched to deal with existing clients only.

There has also been an increase in bilateral loans, as it’s easier to come to a pricing agreement, analysts say.


Mexico was the most active loan market in the first quarter of this year, led by $2.3 billion in credit facilities for TC Energía Mexicana, a subsidiary of Canada’s TC Energy Corporation. TC took out a $1.8 billion term loan and a $500 million revolving credit facility from a syndicate of banks to refinance debt from natural gas pipelines in southern Mexico.

Bordereau says more deals are in the pipeline in Mexico, led by demand for loans for nearshoring investments, or moving production and logistics facilities closer to the US market to reduce concerns of supply and delivery disruptions. This will also increase demand for loans from the energy and real estate sectors in Mexico, analysts say.

Brazil could seek a pickup in demand for larger loans, including a $1 billion loan for Brazilian data center Ascenty.


Another source of growth will be sustainability-linked loans. More companies are taking steps to beef up their environmental, social and corporate governance credentials by setting up ESG frameworks and key performance indicators that will stand up against lender scrutiny, says Bordereau.

“It’s becoming an emerging trend in terms of sophisticated corporates looking to certainly have some sustainability-linked loans as part of their overall capital structure,” he says. “A lot of our corporate clients are reaching out to us and asking for the expertise we’ve developed in being quick to market. We see that demand will continue to increase.” LF