What will 2024 bring for structured finance opportunities?
Sarah Grantham, Associate Director at Nordic Trustee, a leading bond trustee and loan agent in Northern Europe (a subsidiary of Ocorian), recently participated in the impactful Celebrating Women in Structured Finance Summit 2024.
This one-day event championed the achievements of female leaders in the field, offering insights into critical industry areas like CLOs, private credit, ESG, and Diversity, Equity & Inclusion (DEI) initiatives. The summit also explored strategies for fostering the next generation of women leaders within structured finance.
What are the key observations & predictions for structured finance in 2024?
- Distress remains low: Contrary to predictions, significant financial distress hasn't materialised. Businesses have adapted by offering reduced leverage to borrowers.
- Positive outlook for US corporate lending: Investor sentiment is improving, leading to anticipated growth in earnings, sales, and ultimately, lending in the US corporate market. Europe is expected to follow suit within 1-2 years.
- Private credit's strength in volatility: The private credit market has historically persevered through economic challenges, including the dot-com bubble, the Global Financial Crisis, and COVID-19. This trend is expected to continue, with increased demand for liquidity solutions creating further opportunities.
How will these trends impact different areas of structured finance?
- M&A: M&A activity remains subdued. Participants are focusing on refinancing or financing smaller acquisitions while waiting for better interest rates and valuations.
- CLOs: The current market offers potential bargains across the CLO capital structure due to lower-than-expected default rates.
- Private credit & banks: Collaboration between private credit funds and banks is a growing opportunity. Private credit can fill the gap created by reduced bank lending. While some high-profile deals involving bank refinancing of private credit have sparked debate, the long-term outlook remains positive due to the advantages private credit offers to sponsors.
- Regulation: Regulators are seeking greater transparency in the private credit space. This will likely lead to stricter reporting requirements for all private credit managers, potentially benefiting larger firms with established resources.
What are the potential challenges for the market in 2024?
- Geopolitical uncertainty & economic slowdown: These factors could create additional market stress.
- High inflation and interest rates: These factors may pose challenges, but incorporating early warning triggers and covenants into transaction documents can help manage risks.
- Market differentiation: We may see a "tiering" effect where managers with strong differentiation strategies outperform others.
Overall, while there may be some headwinds, the outlook for structured finance in 2024 appears cautiously optimistic. Opportunities exist across various segments, with private credit expected to remain a key player.
Our capital markets brands
Ocorian's capital markets brands include Nordic Trustee, the market leading bond trustee and loan agent in Northern Europe, Stamdata, a leading source of Nordic fixed income market information, as well as Emphasys Technologies, a leading consulting firm that provides structured finance analytics, bond administration and loan portfolio accounting.
From standalone debt to securitisations, listings to loan administration, our presence across key global jurisdictions means we bring local and international knowledge to the table.
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