The creation of the euro has provided a stimulus to an already accelerating trend of takeovers, mergers and other corporate deals as large corporates seek economies of scale to hold their own on a global commercial stage. Nearly e123bn of corporate mergers and acquisitions are now awaiting clearance at the European Commission. It has been replaced by other sources of funding and, clearly, bond issuance is one of the prime candidates. But in the current low interest rate environment, banks are seeking to cut corporate lending and move to debt securities. In terms of choice between the loan and bond markets, it is difficult to justify a borrower's preference for the bond market as loans tend to be cheaper than bonds and, in general, they are more flexible.
Loans offer embedded features such as to the ability to close, extend or review the facility.
Bond issuance is a big and highly differentiated market in the range of products on offer. But, in general, there is greater flexibility through the loan market. Nevertheless, corporates are going to the bond market for various reasons. For one thing, the supply of loans is shrinking. Whereas for a normal loan, in general you pay less than for a bond, a lending facility associated with a merger tends to be more expensive than a bond.