European Debt Finance Intelligence Report 2023Navigating mid-market terms in an uncertain world
“Many participants expect a subdued H1 but with momentum picking up as we move through the year. There is just too much dry powder – both debt and equity – for people to stay out of the market for too long.”
Mapping international trends
“As a result of the challenging economic environment and the strain this is causing on borrower balance sheets, we expect the upward trend of covenant waivers and resets will continue well into 2023.”
Mid-market direct lenders: Challenges and opportunities
Lack of quality assets coming to market
Special situation-type funds
Comparing the approach of lenders
Term under the spotlight
A concept first conceived in the US high yield bond market which has, over the years, made its way into mid-market loan documentation as lenders look to protect their yield if a loan is voluntarily prepaid in advance of its stated maturity. While the concept of call protection is a fairly standard market provision, its relevance, scope and application will vary from deal to deal.
In addition, the refinancing risk profile of each deal is inherently different. Lenders may therefore take into account a number of factors before determining the degree of call protection (if any) they deem necessary.
“Arguably, the redeemable nature of a loan is at cross-purposes with achieving a fixed return for investors; however, call protection (among other tools) offers a private credit a way of mitigating that risk.”