It’s been a relentless year in leveraged finance markets which remained buoyant in 2021, hot on the heels of a booming M&A market and fueled by government-induced liquidity.

While threats to the global economy in the form of inflation, rate rises, supply chain disruption, new COVID variants and tapering can’t be ignored, it’s difficult to see a material slowdown in the level of M&A, and leveraged finance volume accordingly. The reality is that private equity fund raising and assets under management continue to snowball and by design this sector cannot sit on its hands…

We expect sponsors to continue to evolve their practices around ESG issues and for this to become a key part of up front diligence for sponsors and debt providers. ESG reporting by borrowers and the inclusion of requirements to assess performance against objective KPIs which track into an ESG margin ratchet is likely to continue its trend to mainstream in the European leveraged finance markets in 2022, and the US won’t be far behind.

Sponsors are increasingly turning to credit funds for larger ticket financings; deal execution with a single institution is often a lot cleaner and there is a lot of comfort in certainty of terms without exposure to pricing flex in volatile markets. The size and scale of the latest funds, together with the willingness to club, acceptance of looser covenant protection and hunger to deploy shown recently by the larger asset managers suggests 2022 could see unitranche financing turn up the heat on widely syndicated TLB and bond products.