January 19, 2023

Debt Download

Welcome to Debt Download, Goodwin’s monthly newsletter covering what you need to know in the leveraged finance market. We hope your year is off to a good start!

Note: Some of the links in this newsletter may redirect you to a subscription-only resource.

In the News

Goodwin Insights

For the first edition of Debt Download in 2023, we wanted to highlight the Goodwin U.S. Debt Finance team’s predictions for the coming year in leveraged finance. Here is a list of what we are expecting:

  • Private credit will continue to be the overwhelming source of capital over broadly syndicated debt for LBOs until interest rates level off and the pricing flex built into broadly syndicated debt narrows and stabilizes. As private credit lenders look for ways to minimize risk in this choppy market, their check sizes will continue to be smaller than those provided in early 2022, which means more private credit lenders clubbing together for sponsors for larger LBOs.
  • Venture debt will continue to be an attractive option for companies as they prefer higher-priced debt versus doing a down equity round as a source of capital.
  • Sponsors will continue to tap into (and obtain) fund-level credit facilities in order to bridge financing and in some cases provide additional leverage for acquisitions until pricing for LBO loans stabilizes and becomes more predictable. Various types of fund lines (in addition to the typical capital call loan facilities) will continue to be considered more frequently by sponsors, including NAV loans.
  • Amend-and-extends for shorter maturities will continue to gain steam for companies with loans where the debt will become current in 2023. Companies will prefer to pay fees upfront in hopes that interest rates will decline and the market will loosen in a year or two instead of paying for higher priced long-term refinancing options.
  • Royalty financings and other structured products will continue to remain hot in the life sciences space, and documentation and intercreditor arrangements will continue to increase in sophistication.
  • Term Loan A structures will continue to be a popular option among borrowers, who are increasingly turning to relationship banks in light of market conditions.
  • PE-backed companies with delayed draw term loan commitments locked in during the first part of 2022 at lower pricing levels will be aggressive in looking for ways to utilize these commitments with add-on acquisitions and other investments before their commitment period expires during the course of 2023.
  • Companies will continue to look for ways to increase revolver sizes to provide greater runway.
  • Lenders will become more likely to insist on the inclusion of a minimum interest coverage or fixed charge coverage ratio (FCCR), particularly for companies lenders perceive to be a credit risk, as SOFR and interest rate margins continue to climb.
  • Distressed companies will continue to consider liability management transactions notwithstanding potentially adverse court rulings.

For inquiries regarding Goodwin’s Debt Download or our Debt Finance practice, please contact Dylan S. Brown, Nikolaus J. Caro, and Robert J. Stein.

Was this newsletter forwarded to you? You can receive it directly by subscribing here.