Lenders Maintain Optimism After a Banner Year for Leveraged Credit

By: FTI Consulting, Inc. via GlobeNewswire

February 10, 2025 at 07:30 AM EST

WASHINGTON, Feb. 10, 2025 (GLOBE NEWSWIRE) -- FTI Consulting, Inc. (NYSE: FCN) today announced the results of its 2025 Leveraged Loan Market Survey, which found that lenders expect a continued stable lending environment supported by easing interest rates, plentiful lending capital, slowing inflation and an improved climate for large corporate borrowers in the year ahead.

The annual survey offers insight into bank and non-bank lenders’ perspectives on the state of U.S. leveraged lending and highlights expectations for leveraged credit market conditions in the year ahead. This year’s survey found that despite a huge rally in leveraged loan markets in 2024, more respondents expect market conditions to further loosen (27%) vs. tighten (21%), while a majority of respondents (52%) say credit availability and spreads will mostly remain the same this year.

“Despite the Federal Reserve’s late start to cut rates, which only began in September, and its gradual but ongoing reduction of its securities holdings, financial markets showed remarkable resilience in 2024,” said Chuck Carroll, a Senior Managing Director and Leader of the Senior Lender Advisory practice at FTI Consulting. “Surveyed lenders expressed confidence that the positive leveraged lending momentum from 2024 will carry through 2025.”

Retail & Consumer Products is the industry sector most likely to experience distress in 2025, followed by Real Estate/REITs and Healthcare, a slight reshuffling of the top three spots compared to 2024. However, respondents expressed less concern about default prospects in each of these sectors than they did last year, especially for Real Estate/REITs, while Restaurants/Dining moved into fourth place.

More key findings from the survey include:

Loan Default Activity Will Remain Elevated: Surprisingly, a majority of respondents said new default/workout activity in the year ahead will increase slightly (45%) or increase substantially (5%) compared to 2024, while just 13% expect lower default activity compared to last year.
Competition with Private Credit is Picking Up: A majority (55%) of traditional lender respondents said they compete with private credit for deals at least some of the time, while another 31% said they compete with private credit most of the time (19%) or almost all the time (12%).
Impact of Inflation and High Interest Rates Has Moderated: Just 9% of respondents said the impacts of high inflation/interest rates were primarily responsible for loans in workout, compared to 31% in last year’s survey, while idiosyncratic and industry-driven causes were more frequently cited this year.
No Recession in the Near Term, But We’re Not Out of the Woods: Only 15% of respondents said the chances of a U.S. recession in the next 12 months were material or likely, compared to 42% who had those expectations last year. However, only 10% of respondents said a soft-landing scenario for the U.S. economy was “Mission Accomplished,” while a majority (53%) said that label was a premature declaration of victory.

The survey also noted a surge in financial markets and business optimism in the United States following the election of President Trump, yet uncertainty lingers around upcoming economic policy initiatives and the impact of any unconventional policies and executive actions. Ten-year Treasury note yields are 70 basis points higher year-over-year, reflecting concerns about lingering inflation and expanding budget deficits with the administration change.

“As the impact of the new U.S. presidential administration becomes clearer, there will inevitably be winners and losers. However, for now, financial markets across the board have embraced the presidential change with enthusiasm,” said Dave Katz, a Senior Managing Director in the Senior Lender Advisory practice within the Corporate Finance & Restructuring segment at FTI Consulting. “Many survey respondents remain confident about the year ahead, but in a more subdued fashion than financial markets suggest.”

Survey Methodology
FTI Consulting surveyed large bank and non-bank lenders between November 18, 2024, and December 16, 2024, including commercial banks, investment banks, private credit platforms, CLOs and BDCs. Respondents included chief credit officers, workout group leaders, managing directors, senior vice presidents, executive directors, directors and vice presidents. The survey received approximately 260 responses, and about 80% of respondents were based in North America.

About FTI Consulting
FTI Consulting, Inc. is a global business advisory firm dedicated to helping organizations manage change, mitigate risk and resolve disputes: financial, legal, operational, political & regulatory, reputational and transactional. With more than 8,300 employees located in 34 countries and territories, FTI Consulting professionals work closely with clients to anticipate, illuminate and overcome complex business challenges and make the most of opportunities. The Company generated $3.49 billion in revenues during fiscal year 2023. In certain jurisdictions, FTI Consulting’s services are provided through distinct legal entities that are separately capitalized and independently managed. More information can be found at www.fticonsulting.com.

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