Canadian companies are in a strong financial position: As a group, they entered 2010 with some of the largest cash positions on record. For at least the past year, companies have had easy access to long-term capital through bond issues sold at historically low interest rates, and new research from Greenwich Associates shows that banks are eager to provide them with ample amounts of credit at favorable terms.
The results of Greenwich Associates’ 2010 Canadian Investment Banking Study show that the willingness of major Canadian banks to extend credit at attractive terms has served as a powerful supplement to the booming corporate bond market over the past year. Approximately 70% of Canadian companies interviewed at the start of the first half of 2010 said it is “not at all difficult” to access bank credit; only 15% report levels of difficulty in obtaining credit from their banks.
“The improvement in corporate access to bank financing has been dramatic over the past 12 months,” says Greenwich Associates consultant Jay Bennett. “In 2009, only approximately 30% of large Canadian companies stated that they had no difficulties at all in obtaining bank credit.”
orporate Bond BoomMeanwhile, Canadian companies have been taking full advantage of low interest rates and strong investor demand in the corporate bond market. Two-thirds of Canadian companies with investment-grade credit ratings tapped the corporate bond market from 2009 to 2010, as did more than a third of Canadian companies overall. Looking ahead, almost 60% of investment-grade companies and nearly a third of companies overall expect to raise capital through a corporate bond issue in 2010-2011.
These trends mirror developments in the United States. In 2010, 53% percent of U.S. Fortune 500 companies say they’ve issued bonds in the past 12 months, up from 51% in 2009. These companies were so active in locking in funds at attractive rates that they seem to have satisfied much of their long-term financing needs. Looking ahead to 2011, a lower 40% of Fortune 500 companies plan to issue new bonds, even at historically low interest rates. With major banks starting to compete aggressively to make loans to these creditworthy borrowers, the largest U.S. companies find themselves in an enviable position in terms of funding.
“It would appear that Canadian companies are in a similarly enviable position,” says Jay Bennett. “A combination of historically large cash positions, easy access to bond markets and accommodating bank lenders seems to have provided large Canadian companies with more than enough capital to fund the limited investment opportunities emerging in this period of tepid economic growth.”
Strong Signals on M&ACanadian companies are becoming increasingly bullish in their expectations about potential M&A activity. From 2008 to 2009, 28% of Canadian companies were active in domestic M&A transactions. That share increased to 31% in 2009-2010. Looking ahead to 2010-2011, 42% of large Canadian companies expect to be active in domestic M&A. Also, 20% of Canadian companies were active in international M&A from 2009-2010; that share is expected to increase to more than a quarter in 2011.
Greenwich Leaders: Canadian Investment BankingThe primary beneficiaries of a pick-up in M&A activity among Canadian companies will be the country’s leading M&A advisors. The 2010 Greenwich Share Leaders in Canadian M&A are RBC Capital Markets (which is named as an important M&A advisory relationship by 53% of large Canadian companies), CIBC (50%), BMO Capital Markets (48%), Scotia Capital (48%), and TD Securities (41%). The 2010 Greenwich Quality Leader in Canadian M&A is RBC Capital Markets.
The 2010 Greenwich Share Leaders in Canadian Debt Capital Markets are RBC Capital Markets (which is named as an important DCM relationship by 60% of large Canadian companies), Scotia Capital (42%), CIBC (41%), BMO Capital Markets (39%), and TD Securities (38%). The 2010 Greenwich Quality Leader in Canadian Debt Capital Markets is RBC Capital Markets.
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