Competition has driven direct lending pricing pressure

Subdued new money buyout volumes have driven increased competitiveness for direct lenders amid pressure to deploy.

Q1’2024 continued the trend from the prior year of subdued new money issuance as the market continued to grapple with increased volatility in macroeconomic and geopolitical factors. Direct lenders continued to see the majority of their deployment coming from their existing portfolios while at the same time facing the continued pressure to deploy.

As we move into Q2’2024, the market has begun to show signs of a pickup in volume from new money processes which, aligned with the reopening of the market for broadly syndicated loans, has driven direct lenders to compete heavily on both leverage and pricing. The strongest credits, especially in the technology sector, are attracting leverage multiples and pricing that has not been observed for the last 3 years in addition to attractive features such as PIK toggles and more flexible covenant structures.

With credit funds also facing a resurgence of competition from banks, pricing on transactions could continue to tighten further into 2024.

Alantra have noted a favourable shift to more in borrower friendly terms and would be pleased to discuss this further with you.