Page 17 - MTIA Summer 2022 Market Brief
P. 17
Navigating Distress:
Challenges and Opportunities
When restructurings occur, or The prospect of a rise in the number of distressed assets and default rates has
borrowers make moves such been a perennial topic of conversation among loan market stakeholders. While
concerns still run high, there is also a more optimistic scenario.
as shifting collateral to protect
against them, documentation Given the cost for borrowers and lenders, both parties are often keen to stop
can provide stability while short of traditional bankruptcy filings. Lenders are showing an increased
everything else is in flux. willingness to work through alternative approaches instead. Private lenders
especially have more flexibility.
As a result, distress and defaults may be unlikely to reach true “high tide” levels.
Instead, defaults are more likely to lead to arrangements such as prepackaged/
prearranged filings with terms agreed upon in advance or Restructuring Support
Agreements (RSAs), where borrowers and lenders negotiate the terms of a debt
restructuring plan.
Navigating Complex Debt Restructurings
The world of broadly syndicated lending faces unique challenges in periods of
distress. These challenges can arise when corporate borrowers face liquidity
issues affecting their ability to meet the provisions of loan agreements or
make payments. They can also emerge more systemically in the case of
macroeconomic turbulence that affects spending or credit markets.
The trend of larger and larger M&A financing capital structures has only further
fueled complexity, with more lenders, including non-bank lenders, playing a part.
Loan Agent capabilities and activities have scaled to meet this demand, with most
loans including several hundred syndicate participants.
Private Credit Trends
Unlike the last debt restructuring cycle during the Global Financial Crisis of 2008,
private credit has built up a significant market share, especially in middle-market
deals. Private creditors such as private equity firms or institutional investors
typically have more leeway in renegotiating terms or agreeing to a forbearance
period. However, banks in broadly syndicated loans must contend with more
guardrails and regulations, which limit their options.
The potential for distress has also changed the climate for new lending. Lenders
across the lending base have significantly more sway in the negotiation process.
As a result, loan sponsors and borrowers must make more concessions in terms
and conditions. The market has considerably less room for the kinds of covenant-
lite transactions that have characterized the market in the past decade.
©2025 M&T Bank and its affiliates and subsidiaries. All rights reserved. 15
