As one of the largest European independent advisers, Clearwater's Debt Advisory team remains highly active, having completed 40 deals across Europe in 2023 and entering 2024 with a strong pipeline of new mandates.
The team has surveyed 58 lenders across Europe to determine what recent market changes mean for borrowers in 2024.
The lenders surveyed were spread across banks and debt funds, covering a range of transaction sizes and multiple regions, therefore providing a comprehensive view of the European leveraged finance market.
With inflation hitting highs not seen for over 30 years and central banks responding with rapid base rate increases, 2023 has proved one of the most challenging years for European debt markets since the 2008 financial crisis.
The high interest rate environment has been compounded by further threats to the global economy following two years of war in Ukraine, supply chain disruption, geopolitical tensions and the failure of three significant banks in the US.
"interest rate swap markets are signalling strong confidence that rate cuts will be delivered"
Despite these challenges, green shoots of optimism are now coming through with inflation across Europe having reduced significantly in the final quarter of 2023. Whilst inflation is still running at broadly double central banks’ target rates, interest rate swap markets are signalling strong confidence that rate cuts will be delivered across 2024.
Key highlights included:
- 55% of respondents reported a reduction in leverage appetite of at least 0.5x EBITDA over the last twelve months
- 43% of lenders indicated that margins have increased by up to 50bps, although arrangement fees have
remained broadly unchanged for 76% of lenders - 52% of debt funds are now introducing more PIK into their deal structures, with the majority allowing between 100bps and 300bps of margin to be PIK’d
- 78% of debt funds reported that they had raised new funds, with almost a quarter raising more than €2bn
- 69% of lenders stated that hedging remains optional, even in today’s higher interest rate environment
- 68% of debt funds have changed strategy, with key themes being greater focus on specific sectors, size, sponsors targeted, and geographies
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