Collapsing cost of euro funding lures U.S. firms over the ocean

Fri Nov 27, 2015 9:47am EST
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By Jamie McGeever

LONDON (Reuters) - The euro's slide against the dollar this year has been a competitive boon for corporate Europe, but it has also opened up an alternative financing window for corporate America.

This will be a record year for U.S. companies raising funds in euros, a financing option that should be widely used again next year if the euro weakens further against the dollar, as most analysts expect, and interest rate differentials remain wide.

U.S. non-financial firms have already raised a record 69.8 billion euros ($73.8 billion), up sharply on the previous record of 41.7 billion euros last year, according to Thomson Reuters data up to November 24.

That marks a rise to 25 percent of total issuance, also a record, from 15 percent. The number of deals stands at 68, well up from 50 last year and within sight of the record 73 set in 2000.

This surge has been prompted by the sharp fall in the euro and euro funding costs this year which has made it more attractive than ever for U.S. firms with a global presence to raise cash on the other side of the Atlantic.

The euro is on course for its biggest annual fall against the dollar since the year of its launch in 1999, while the gap between euro zone and U.S. bond yields is its widest in years.

For companies, the euro's "cross-currency basis swap" rate -the cost of swapping euros into dollars without the exchange rate risk - has been central to their renewed appetite for euro funding.

This week the three-month basis swap showed the highest premium for dollars since mid-2012. Earlier this month longer-dated bases that corporates use more, such as 5- or 7-year rates, hit their highest in almost four years.   Continued...

An employee checks an Euro note at the Bank of Taiwan head office in Taipei May 10, 2010.  REUTERS/Pichi Chuang