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There are no shortage of factors that have troubled market participants this year: Brexit; US monetary policy direction; fragility in European banks; oil prices. All of these issues, and others, have caused credit spreads to widen at various intervals in 2016.
But the last few weeks have seen calmness return to the credit markets. The VolX Europe, which shows the realised volatility in the Markit iTraxx Europe index, hit 26.4% this week, which is the lowest level for almost two
Influx of second-lien issuance has investors pushing back on terms
Recently, investors have been more open to the lower rated, higher return type of loans that were more scarce earlier in the year. In particular, second-lien issuance has picked up. Just two weeks into October and there has already been US$1.5bn in completed second-lien loan issuance which would account for 57% of second-lien issuance for all of 2Q16. This influx of higher yielding assets into the market has caused more push back from investors during negotiations...
Private Debt: Funds in Market
Preqin’s quarterly update on the private debt industry finds that as of the beginning of Q4 2016, there are 304 funds in market targeting an aggregate $147bn globally. With few funds closing through the year to date, the marketplace has grown considerably since mid-year; there are 50 more vehicles on the road seeking an extra $6bn of investor commitments compared to the start of Q3.
Direct lending, once again, represents the largest proportion of private debt funds on the road, both by number (38%) and aggregate capital targeted (39%)...
Debt Usage in US M&A Remains Historically Low
Even as multiples remain stubbornly high across multiple sectors, debt usage remains low. This is primarily the result of a confluence of factors, including stricter regulations, cash-rich buyers and a general trend toward buying and building as a strategy on the part of private equity investors. In that last case, PE firms aren’t relying as much on financial engineering as they used to, looking instead to deploying more equity in deals to avoid overburdening portfolio companies with barely serviceable debt loads. Of course, that necessitates shrewd operational enhancements...
Review of Current Market Conditions/ Analysis of Capital Markets Metrics Including Covenants, Pricing, and Leverage/ Review of Credit Quality/ Outlook for Fourth Quarter 2016
Liquidity and Credit Appetite/ Middle Market Pricing and Leverage/ BDCs and Middle Market CLOs/ 2016 Predictions and Trends
Banks vs. the Non-Banks/ Hurdles: Legal, Cultural, and Logistical/ Opportunities and Challenges/ A Path to Success/ Outlook for 2016…and Beyond