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Liquidity was available for the right borrowers, but elevated funding costs, tight credit policies and geopolitical events dampened demand for M&A financing during 2023. General refinancing requirements were limited and for those needing to come to market, A&E solutions were preferred to full refinancings. These factors made the last year an exceptionally quiet one for the loan market.
Although tempered with now-familiar warnings of volatility, for businesses planning to re-enter the loan market in the next 12-24 months, sentiment appears more positive. Demand for loan financing is expected to be more robust in 2024 and beyond, in part due to the greater volumes of loans with impending maturities, but also prompted by anticipated reductions in funding costs (relative to recent levels) as inflation starts to decline, which may encourage an uptick in event-driven financings.
This briefing considers the near-term outlook for the loan market in terms of funding and liquidity, our views on whether the sustainability-linked loan market will return to growth, plus an indication of some other themes and topics that we expect to colour loan financing strategies and terms during 2024.