Given the rising rate environment and volatile economic conditions, I feel like it’s going to be a terrible year for institutions that rely on fee income associated with new issue syndicated loans. There’s been minimal new issuance in the B3/B credit range and the poor reception of last year’s jumbo syndicated loans doesn’t help (thinking of Citrix / Tenneco and the Twitter debt that hasn’t been sold off if I recall correctly).
Doesn’t help that private credit providers continue to win market share and cement their place as lenders to companies of any size in nearly any financing market.
What’s the vibe at your institution right now? Our deal flow / pipeline is looking slender, though I think there’s hope that things improve in Q2 or thereafter. We lean on syndicated and pro rata financing structures either as lead or JLA. Tough to compete with directs.
Just saw a report where GS predicts M&A activity will pick up around Q2? Didn’t go through it extensively but maybe that’d reflect positively on this market.
A quick thought - I’m really assuming PC is doing a good job at estimating risk across their deals since there’s little to no regulatory oversight here if I’m not mistaken. If not, don’t you think we are all in for a very rude awakening a few years down the line?
From what I've seen, PC doesn't do a great job of estimating risk across their deals. Can't tell you how many times a shitty deal has come across my team's desk that we easily pass on only to hear about its successful financing on debtwire a month later.
Maybe they had a dif risk tolerance ?
My expectation is for things to be slow through Q2’23 which is obviously pretty unfortunate given the hiring spree that occurred in 2021-Q1’22. I think the syndicated market will be slow out of the gate with underwriting committees gunshy unless the credit is flawless, the structure is perfect AND the markets are signaling all systems go.
I don’t necessarily think PC is more prudent with regards to risk but simply that they have a more flexible mandate given their unregulated status - banks would do the exact same deals and holds if they could. Anecdotally I have heard PC has shifted to smaller holds and better credit quality while also focusing more on portfolio company performance given economic turbulence.
Syndicated will come back once the fed telegraphs a slowdown or pause in rate hikes.
Our pipeline is fairly dry. Our risk officers are emphasizing risk adjusted returns rather than throwing money at any company. Since other banks are pulling away, we’re going all in on trying to uptier to JLA on credits we feel confident in and expect future fees from M&A, public offerings, etc.
If you don’t mind saying, which bank are you at?
Similar situation at our bank - slim pipeline and slow all around. We managed to not take any material losses on the variety of hung deals in 2022 and thus are well positioned, however there is definitely jitteriness with regards to underwriting particularly in the B3/B credit space we so commonly see for sponsor backed LBOs
As a prospect I don't have anything to add but I'm just wondering what group at banks are responsible for this kind of work? Is it DCM?
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