Resilient Leveraged Finance Market Becomes Increasingly Discerning in Q3

Against a challenging global backdrop, the leveraged finance market turned in a solid third quarter, as both borrowers and lenders found ways to be aggressive.

Tuesday, October 29, 2019

During the third quarter, participants in the leveraged finance market were forced to navigate a multitude of complicating factors, including escalating trade tensions, a violent shock to oil markets, an inverted yield curve, two Fed rate cuts, a formal impeachment inquiry, and broad concerns about both global and domestic growth. With that in mind, a pullback in leveraged lending activity wouldn't have been surprising.

However, despite the conditions, leveraged loan volume in the third quarter was $128 billion, up 15% from the previous quarter and up 7% year-over-year. Growth during the quarter was supported by institutional loan volume of $92 billion, up 31% from the prior quarter thanks to July and September being the two strongest months of 2019. While M&A-related volume increased 27% to $48 billion, the biggest contribution came from refinancing activity, which generated $35 billion of total volume, up 103% from the prior quarter and up 141% year-over-year. With higher-quality paper in demand and plenty of dry powder on the sideline, borrowers seized the opportunity to refinance existing debt, optimizing pricing and terms while pushing out maturities.

Although volume remained strong, overall market sentiment is beginning to trend in lenders' favor. The market has shown more discipline of late, with lenders particularly focused on structure and protecting value as we approach the end of the cycle, as opposed to searching for the best pricing opportunities.

Highlights of this quarter's Leveraged Finance report include:

  • Private equity sponsors increasingly turn to direct lending market
  • Expected timing of credit cycle shapes lender decision-making
  • Highlights from William Blair's Quarterly Leveraged Lender Survey


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