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Corporates, Is It Time to Refinance?

  • By Andrew Deichler
  • Published: 2/10/2017

Interest rate speculation is providing a big opportunity for corporate treasury and finance professionals who want to refinance their loans.

The Wall Street Journal reported that U.S. businesses refinanced $100 billion in bank loans in January, largely based on speculation that interest rates are poised to rise. It was the largest monthly total since 2007, before the onset of the financial crisis. Moreover, $222 billion—24 percent of the entire leveraged loan market—has been refinanced since October, noted LevFin Insights.

According to a WSJ analysis, borrowers have saved more than $1 billion in annual interest costs by renegotiating their loans.

Demand for bank loans has seen quite the uptick in recent months, given that they tend to perform well as rates rise. The result has been an increasingly competitive loan market in which corporates have been reaping the benefit. Companies are demanding their lenders cut rates or face losing their business. Even new loans, which typically can’t be refinanced for six months, are being reworked.

“Companies are taking advantage of the strong investor demand for loans and refinancing because they can,” said Craig Martin, AFP’s director of executive programs and treasury practice lead. “So if you haven’t taken a look at this, maybe you want to. The loan investment market is hot, and it’s driving down rates.”

However, Martin also cautioned that the party could end if the economy and credits turn south, resulting in demand for the investment product drying up. “So if you’re going to take advantage of it, you should do it now,” he said.

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