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Outlook for US direct lending

Outlook for US direct lending

02 November, 2022

How much growth in US direct lending market do capital markets executives expect over the next 18 months?

New research* from global loan agency provider Ocorian shows capital markets executives are forecasting strong growth in the US direct lending market with corporate M&A and refinancing expected to lead the way.

Ocorian's research with capital markets executives working in direct lending in the US and UK specialising in first lien loans to companies with under $1 billion annual revenue found almost all are forecasting growth in the volume of loans with just 1% predicting a standstill.

The study from Ocorian, expert provider of private client, fund, corporate, capital markets, and regulatory and compliance services, found 59% predict growth over the next 18 months of 10% or more with one in seven (14%) forecasting 15% growth.

The most important factor in the growth in the volume of direct lending loans in the US identified by the research is improvements in the regulatory environment followed by the strong performance of these asset classes in current volatile markets.

Investors looking to diversify their portfolios will also help drive growth in the direct lending market in the US while growth in the number of funds to choose from is another important factor.

Capital markets executives questioned expect to see the most growth in corporate M&A followed by the leveraged loan market, as the table below shows.

How do you expect to see growth change in the following areas of the direct lending market over the next 18 months?

Corporate M&A 39% 44% 13% 4%
Refinancing 35% 42% 18% 5%
Leveraged loan market 39% 32% 13% 16%
Restructurings 30% 39% 23% 8%
Other 4% 31% 44% 21%

Capital markets executives expect to see regulation of direct lending increase over the next 18 months with 15% expecting dramatic growth in regulation, while 71% believe the level of regulation will increase slightly.

Martin Reed, Head of Capital Markets - Americas at Ocorian said: "Our research shows that improvements in regulation are seen as the biggest driver for growth in the direct lending market with senior executives working in the sector expecting a surge in the volume of loans over the next 18 months. Of course, regulation is not the only factor, and our research identified the need for diversification and the performance of these asset classes during volatile markets are also driving expansion."

Download Ocorian’s free infographics to read all about their findings here.

About Ocorian Capital Markets

Ocorian's loan administration team combines extensive market experience and first-class IT infrastructure to provide independent third-party facility agent services for new transactions, as well as successor facility agent services for existing transactions.

Ocorian's Capital Markets team have full exposure to capital markets transactions through the provision of management, agency and administration services to securitisation, structured finance, and alternative finance transactions worldwide. Find out more here.

* Ocorian commissioned independent research company PureProfile to interview 100 senior executives working in capital markets and the direct lending market in the US and the UK during August 2022.