Moody's: Italian corporate bond issuance to rebound to 'normal' levels in 2017-18

Favourable market conditions, the need for large repeat issuers to refinance and the marginally improving macroeconomic environment in Italy will help fuel a recovery in bond issuance from Italian non-financial corporates over the next 12 to 18 months, says Moody's Investors Service in a report published today.

"Italian corporate bond issuance should recover to more normal levels of EUR20 billion to EUR25 billion in 2017 and 2018 after hitting a five-year low of EUR18 billion in 2016 on the back of global macroeconomic gyrations," says Lorenzo Re, Vice President -- Senior Analyst at Moody's.

Moody's report, "Non-Financial Corporates -- Italy: Corporate Bond issuance to recover from 2016 low," is available on www.moodys.com. Moody's subscribers can access this report via the link provided at the end of this press release. The rating agency's report is an update to the markets and does not constitute a rating action.

Volumes in the first five months of 2017 jumped 88% to EUR13.7 billion from the same period a year earlier, but volume growth will probably slow in the second half of 2017 as (1) there is a tougher comparison base for the second half, because issuance volumes rose in the second half of 2016; and (2) there are unlikely to be the large issuances in the second half of the year that have so far driven volumes in 2017 (i.e., from ENEL S.p.A. (Baa2 stable) and Italgas S.p.A. (Baa1 negative)).

M&A could support increased issuance in 2018, with Atlantia S.p.A.'s (Baa2 negative) EUR16.3 billion tender bid for Abertis, if completed, potentially boosting bond issuance next year. Bar this deal, Moody's expects volumes to hover around 2017 levels. Bond maturities totaling EUR18 billion to EUR19 billion in both 2018 and 2019 will support continued market activity around current levels but not a material surge in volumes.

Large repeat issuers will continue to drive the market into 2018. Although the number of companies issuing bonds in January to May 2017 rose to 15 from 11 in the same period of 2016, a few large repeat issuers accounted for 68% of volumes. There were only two first-time issuers in that period 2017; Italgas S.p.A. (Baa1 negative) and Società Metropolitana Acque Torino Spa (SMAT, unrated), which accounted for 16.7% of total volumes.

Sluggish issuance by Ba-rated companies will pick up as their maturities loom. The high yield market had a very slow start to 2017 as a result of weak volumes from repeat issuers in the Ba category. However, Moody's expects these companies to return to the market because they face significant bond maturities from now until end-2018.

Bank loans will remain highly competitive, especially for smaller companies, despite the fact that bond issuance volumes surpassed that of new bank loans between January and May 2017. Data from the Bank of Italy suggests that lending conditions have eased further in 2017, while bank liquidity remains abundant.

Italian companies' high-yield bond covenant protection will stay in line with the average for EMEA high-yield bonds through 2017. Between 2012 and 2016, Italian bonds offered materially better protection than other EMEA bonds. However, this changed in the first quarter of 2017, with the average covenant protection provided by the two Italian full package high-yield bonds issued in line with the average covenant score for other EMEA high-yield bonds.