2022 Capital Markets Outlook (Second of a series)

Churchill’s Kelli Marti and Jessica Nels continue their commentaries related to the firm’s 2022 Capital Markets Outlook [link]:

From loan issuance, to LBO and M&A activity, to record CLO volume, 2021 was an unprecedented year in many forms. Coming off that record-breaking activity, we consider what lies ahead in 2022. In December 2021, our content partner S&P / LCD surveyed buy-side, sell-side and advisory professionals to gauge sentiment for the year ahead.

Here’s a summary of its findings:

  • Issuance will continue at record levels due to demand for floating rate debt from fixed income investors;
  • The loan market does not expect a correction in 2022, but instead anticipates periods of “mini volatility”;
    o 61% said a correction would be unlikely to occur within the next 12 months;
  • The loan default rate will linger near post-crisis lows (below the current <1%) for at least the next 13 months;
  • Inflation is most likely to impact the performance of credit portfolios in 2022, along with supply chain and labor shortages which are also contributing to the overall price inflation of goods;
    o 93% believe inflation will be at, or above, the Fed’s 2% policy target;
  • 85% of respondents called for rate hikes in 2022 [Polling for LCD’s survey took place Dec. 1-13 — before the Fed signaled three rate hikes by the end of this year];
  • Leverage levels on new deals are unlikely to fall, supported by robust enterprise values.