Members of Stevens & Bolton’s Banking & Finance team attended the Loan Market Association's UK Mid-market Update in London last week.
Panel members Matt Osborne, Co-Head, CMB Origination at HSBC; Nick Soper, Director, Debt Advisory, Deloitte; and Martin Bishop, Head of Financial Institutions, Pinsent Masons discussed the current issues in the UK mid-market, highlighting the current trends, challenges and opportunities.
We provide a brief summary on the key points agreed upon by the speakers and attendees during this informative seminar:
- Q1 2016 has been very slow in the mid-market loans market - "the slowest Q1 for 14 years" according to Matt Osborne, HSBC.
- This contrasts with a “busy though unexciting 2015” when many borrowers completed “recreational refinancings” meaning amending and extending existing facilities to lock in favourable terms ahead of scheduled maturity date of their current financing.
- Reasons for slowdown were felt to be a mix of macro and micro points. On a micro-level statistics indicate that most borrowers have already refinanced - amend and extends (including “recreational” ones) in 2015 pulled forward deal flow from 2016. On the macro-level Brexit uncertainty, weak performance of commodities markets and China contributed.
- M&A loan volumes have also decreased in Q1 of 2016 by 30% in comparison with Q1 of 2015. This compares with a 50% reduction in loan volumes due to refinancings. A weak pound had been detrimental to “exported” M&A although good for inward investment.
- CFOs report that credit is generally cheap, though with modest tightening in lending criteria from 2015 to 2016. There is good liquidity in the market despite low pricing and increased regulatory costs (“the banks are awash with dry powder”). Banks are competing for market share but there is a sense that rates can’t go lower and “at some point banks are going to want better returns from their lending”.
- The real estate finance market continues to be busy – London’s skyline is a “forest of cranes”. There is increased lending by debt funds including insurance companies because banks are losing appetite for long term loans as a result of regulatory costs. Shorter term loans are becoming more popular.
- Increased utilisation of accordion facilities – i.e. uncommitted add-on facilities built into existing facilities where existing lenders have a first right of refusal to lend. These have been popular where there is no need for full refinancing as typically they involve little or no negotiation and, therefore, lower fees.
- More consistency of bank policies in documents i.e. less flexibility for borrowers to negotiate away from bank-prescribed terms, especially in areas such as regulatory protections, sanctions, and transferability of loans.
- More “dynamic baskets” in upper mid-market i.e. more flex in determining what “permitted” transactions a borrower can enter into without needing lender consent.
If you are interested in exploring what financing options are available to you, we will be able to help or put you in touch with others who can.
Jonathan Porteous, Partner, Head of Banking & Finance: firstname.lastname@example.org
Andrew Dodds, Senior Associate, Banking & Finance: email@example.com
Robert Calleja, Associate, Banking & Finance: firstname.lastname@example.org