Page 5 - MTIA Summer 2022 Market Brief

New Norms, New Needs

The loan market has undergone significant structural shifts in recent years. From The Loan Market Has Experienced
2020 to 2024, economic uncertainties and rising or high interest rates changed Dramatic Shifts 2020-2024
borrower needs, lender priorities, and approaches to constructing deals. In this context, service providers must
help clients navigate risks, capitalize
The loan market has undergone significant structural shifts in recent years. From on opportunities, and transform
operations as needed.
2020 to 2024, economic uncertainties and rising or high interest rates changed
borrower needs, lender priorities, and approaches to constructing deals.
2020

Unfinished Business • COVID-19 forces a hard pivot to
remoter work.
Central banks have by no means finished their efforts to tamp down inflation. • Stakeholders brace for
Although inflation has cooled and initial rate cuts have occurred, other data, such uncertain impacts.
as continued labor market strength or the risk of energy cost spikes, make the • Central banks institute quantitative
timing of further rate cuts hard to pin down precisely. easing programs and rate cuts.
• Private debt shows strength.
Overall, these macroeconomic uncertainties cast a shadow on loan market
outlooks. If recessionary tremors continue, corporate borrowers will face 2021
heavier debt burdens due to higher-cost loans. Prospects for upticks in distress • Recovery and hybrid work emerge.
scenarios and defaults persist. • Loan market awaits impacts
from COVID-19.
However, the situation differs from 2008 in several critical ways. Liquidity remains • ESG in loans surges with
ample. Private credit adds flex to the market with more opportunity to extend, Sustainability-Linked Loans (SLL).
amend, or restructure deals than in past cycles. Structural shifts make room for • Non-USD LIBOR ends.
creative solutions, provided stakeholders remain agile and adaptable to what • CLOs are under pressure.
emerges in the coming year.
2022

Structures and Players in Transition • Wave of distress does not
materialize.
Conditions for the next few years resemble periods of Earth’s history where rapid
• Rate hikes begin in response
evolution and diversification created massive numbers of new species. Deals to inflation.
grow more complex and customized—the coming year will be no exception. • Private credit continues to
climb as bank lenders hold back.

2023

• USD LIBOR ends.
Looking out over the next three to five • Macro and geopolitical
uncertainties persist.
years, a number of factors will coalesce to • Complexity and customization
increase.
keep average inflation at or slightly above • ESG attracts political fire (U.S.).
the Fed’s target. • CLO issuance strengthens.

— Wilmington Trust 2024 Capital Markets Forecast 2024
• The market continues to hope for
a durable “new normal.”
• EU, U.K., and U.S. rate cuts begin.
• Adaptability and resilience remain
fundamental.

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