Exposure to European Banks Moderate for US Corporates

Location: New York
Author: Brian Bertsch
Date: Tuesday, October 18, 2011

U.S. corporate credit facilities have moderate overall funding commitments from European banks, according to a Fitch Ratings study. Fitch sampled a group of revolvers and found that most contained approximately 20%-45% of commitments from European banks. While overall exposure in corporates is moderate, specific issuer exposures can be significant, with commitment levels as high as 62% for individual revolvers.

Sectors with higher exposure included energy (oil and gas), autos, and chemicals, while sectors with somewhat lower exposure included consumer and diversified manufacturing. Within each category, multinational companies tended to have higher levels of exposure to European lenders. Banks with the largest lending exposure to U.S. corporates include U.K. banks, followed by French, German and Dutch banks.

Fitch notes that current liquidity across the U.S. corporate sector is solid, driven by restrained capex, lean cost structures, and cash stockpiling. These factors tend to mitigate the potential near-term impact that a reduction or repricing of European bank commitments could have on U.S. issuer liquidity.

However, a prolonged eurozone debt crisis could push banks to exit or reprice certain business lines, including dollar-denominated credit lines to U.S. corporate issuers, as a number of French banks have already announced. In the near term, the commercial paper market could be impacted if material amounts of back-up lines are reduced at maturity or extension dates. Longer-term ramifications of a prolonged crisis may include reductions in the size of future credit facilities, increased lender concentration in syndicates, and a move to alternative sources of liquidity.

As stated in previous comments ('The Euro Area Financial Crisis - How Does it End?,' published Sept. 20, 2011), Fitch believes that the likelihood of a Eurozone breakup and dismantling of the Euro are very low. In Fitch's view, the more likely scenario is a gradual move to an institutional and financial framework that falls short of full fiscal union but sufficient enough to prevent a breakup.

The full report 'U.S. Corporates: Moderate Exposure to European Banks' is available at 'www.fitchratings.com'. In addition to the commentary mentioned above, the report also provides examples for eight issuers across different industry segments.

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