European Companies are Frantically Searching for New Emergency Loans

Companies struggling with high inflation and rising operating costs desperately seek new short-term liquidity. The extent to which companies are now looking is comparable to the situation during the heyday of the corona crisis in 2020, the financial news agency Bloomberg analyzed.

European companies are taking facilities that expire in two years or less. The term is, therefore, considerably shorter than the average five-year term of loans. This year, they have taken out 76 billion euros in short-term financing. That is the second-highest amount ever after the €153 billion provided in 2020, according to data from Bloomberg.

The increase in emergency funding is a worrying sign, experts say. Especially now that central banks are working hard to keep rising inflation in check. Last week, the European Central Bank doubled its key interest rate to its highest level in over a decade. At the same time, the US Federal Reserve is also expected to continue raising interest rates sharply. The Fed will decide interest rates on Thursday.

According to experts at Credit Agricole Corporate & Investment Bank, the number of transactions is driven by rising commodity prices, the expectation of further price fluctuations and price uncertainty, according to experts at Credit Agricole Corporate & Investment Bank. In addition, according to Credit Agricole, companies are also increasingly borrowing to get general business financing in order.

Just last week, medical device manufacturer Philips received a loan of 1 billion euros with a maturity of 12 months “in light of recent developments and market volatility”. Other companies that have applied for short-term loans include Italian utility Enel, German truck builder Daimler Truck and Swiss energy company Axpo.

Loans from companies in the energy and utility sectors account for two-thirds of the total for the year. Earlier this year, commodity traders rushed to attract such resources after the Russian invasion of Ukraine sent prices skyrocketing. The fluctuations in the bond market have also prompted some companies to take out short-term loans to cover the approaching maturity dates of their debt.

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