The Loan Market Association has undertaken a survey of its members’ views on the outlook for the loan market in 2015. John Chater of Penningtons Manches LLP considers the results.
The findings can broadly be summarised as renewed (or continuing – depending on your view) optimism in the market, with the best opportunities arising from M&A and with non-bank finance forecast to increase. Although the survey relates to the syndicated loan market, the responses to three key questions may be mirrored in the bilateral market.
The most interesting question the survey asked was: Next year (meaning 2015), where do you think the best opportunities will lie in the loan market? The responses reveal it is anticipated that the best opportunities will be financing corporate M&A. Of the respondents, 33.5% predicted corporate M&A will be the best opportunity. This marks a key change from the 2014 survey, where refinancings were predicted to be the best opportunities, and is reflected in the steadily increasing amount of corporate M&A we are seeing, with lending opportunities rising as a result. It is worth noting there is still likely to be a fairly large number of corporates who will want to refinance in 2015.
Another key question the survey asked was: Which lending ‘source’ do you think will demonstrate the greatest growth in real estate lending in 2015? Non-bank lending is expected to show the greatest growth this year. Of the respondents, 32.4% predict debt funds will be the source of the greatest growth, while others predict the source of the greatest growth will be banks (21.0%), pension funds (19.9%), insurers (15.5%), sovereign wealth funds (8.2%) and other sources (3.0%).
The findings perhaps reflect increased competition and diversification in the real estate lending market, as well as renewed optimism in property as an investment. In our opinion, the investment arms of insurance companies may well play a vital role in the commercial real estate sector, as they may look to invest more and more in what could be viewed as reasonably safe medium/long-term investments with the potential for higher yields.
A similar question in the survey was: In five years’ time what will be the change in market share in volume terms of non-bank finance in the loan market? Most respondents predict there will be an increase in non-bank finance, with 52.8% predicting a moderate increase and 32.7% predicting a significant increase. The LMA points out that this reflects the regulatory drive to encourage the provision of credit from sources outside the banking market. However, we expect bank finance to continue to play a significant and vital role.