Bankers said a number of companies rushed deals in November and December to take advantage of strong bank liquidity and cheap pricing, mindful of the risk that Basel III capital controls could push up the cost of debt in 2014.
Power company Energy Australia, property firm Lend Lease Corp Ltd and search firm Seek Ltd were among borrowers seeking to reprice their loans before the year end.
Seek was looking for a A$557 million ($495.26 million) loan to refinance an existing A$450 million deal raised a little over a year earlier. But by far the largest loan of 2013 was Origin Energy Ltd's A$6.6 billion ($5.87 billion) refinancing closed in November. The deal refinanced all of the company's existing loans, including bilaterals, into one core facility.
Loan margins fell steadily during the year in tandem with banks' funding costs.
Lenders believe margins have slid far enough and are unlikely to drop much more unless funding costs also come down further. Even so, slow deal flow in early 2014 could start another round of margin cuts, lenders say, as demand out paces supply.
At current levels, banks say the margin on a three-year loan for a BBB rated company is around 135-140 basis points, while a five-year loan is being quoted at around 165-175 basis points.
Upfront fees have steadied for investment-grade borrowers to 10 basis points per year, while sub-investment-grade companies pay at least 15 basis points per year in fees. There is also pressure for commitment fees to drop to 40-45 percent of the margin, down from the current 50 percent level.
BETTER M&A PROSPECTS
Merger and acquisition activity was quiet for most of 2013, except for deals such as private equity giant TPG's acquisition of poultry producer Inghams Enterprises Pty Ltd, the year's largest leveraged buyout.
Instead, private equity firms spent 2013 busily refinancing and recapitalising investments to pay dividends to shareholders including Pacific Equity Partners' Hoyts Group and Link Group.
The U.S. institutional market continued to provide liquidity and more aggressive structures to leveraged companies such as Alinta Energy Ltd, Spotless Group Ltd and Hoyts.
Iron ore miner Fortescue Metals Group Ltd took advantage of a window to reprice its $4.95 billon term loan B in November, barely a year after it completed the initial deal. The margin was slashed by 100 basis point to 325 basis point over Libor, saving the miner $50 million a year in interest costs.
M&A bankers are hopeful of a turnaround in 2014 as confidence in the economy improves, spurred by offshore deals already announced by glove manufacturer Ansell Ltd and Seven Group Holdings Ltd.
A fierce three-way fight for dairy company Warrnambool Cheese & Butter Factory Co Holdings Ltd should also be resolved in 2014. The project finance market has enjoyed steady dealflow, including large refinancings for the AquaSure desalination project and the Sydney desalination plant.
Maintaining the momentum in 2014 will be the closing of a number of public-private partnerships in the bid phase, including the North West Rail Link and Perth Stadium.
In the resources sector, the $7 billon project financing for Roy Hill Holdings Pty Ltd's proposed 55 million tonnes per year iron ore mine is slated to close in the first quarter of 2014.
The pipeline in New Zealand is brightening with the upcoming sale of Transpacific Industries Group Ltd's waste unit, as well as the closing of the NZ$1 billion-plus ($818.60 million) Transmission Gully road project.
The New Zealand market was generally flat in 2013, dominated by refinancings arranged on a best effort or club loan basis for companies such as Chorus Ltd.
A rare exception was a NZ$165 million ($135.07 million) underwriting by Bank of New Zealand for mobile operator Two Degrees Mobile Ltd. Total volume for the year was $12.3 billion, compared to the $11.5 billion completed in 2012.