March 6, 2025 - On March 5th, the LSTA and the LMA hosted their joint Loan Markets Conference in London, and for those of us unable to be in London, we could listen to the livestreaming of the event, which was an excellent option.
Addressing a room packed with about 400 delegates, Scott McMunn, CEO of the LMA, and Sean Griffin, CEO of the LSTA, kicked off the conference. Mr. McMunn noted the importance of hosting a joint event and stressed the connectivity between the markets and the Associations, highlighting the overlap between their memberships. Mr. Griffin then noted that we can come together in an open forum to share our thoughts and ideas about corporate lending and highlighted the similarities across the markets and the increasing number of cross border transactions. With the client base and advocacy work becoming more globalized, it makes sense for the markets to follow. The CEOs both agreed that the underlying framework for the loan markets is stretched, and the Associations can work jointly to find global solutions.
The first panel of the day, UK and US Loan Markets: The BSL Market, was led by Ben Thompson of JPMorgan with Gianluca Consoli of PGIM, Stuart MacKenzie of Carlyle Group – CELF, Jeremy Selway of DB, and Tommy Wong of Oak Hill Advisors. The panelists provided a unique comparison of the two markets and an overview of the key trends and deal terms seen over the past 12 months. In Europe, market participants are very busy, and the price of risk has dropped with the ability of the market to price risk also improving, but there remains limited M&A volume. There was a desire for there to be fewer repricings but this was unlikely because demand continues to exceed supply, and more of the same is expected in the next few months. In 2024, there were a handful of LBOs and although not completely dead, it was slower than what people were expecting. Barriers to more M&A deals persist, including buyers / sellers being able to meet at a valuation, earnings projections, and sponsors’ ongoing exit concerns when they review investment opportunities. The European market is not over-levered and there is a decent borrowing environment; however, the curveball could be tariffs. In the US private credit / direct lending space, the reality of the balance of power between the dynamic private credit demand and the BSL market is a two way flow which is trying to solve the cost of capital focus and availability of the quantum of debt. Private credit should be regarded as yet another pillar of being a player in the market, and some deals may flow between both markets.
The plumbing in the European BSL market includes documentation, reporting, transfer restrictions, and settlement times. The settlement times of certain European banks are improving, and players are opting to trade, whenever possible, with those banks who can settle more quickly. LSTA is also trying to improve settlement times (the somewhat elevated settlement times in the US market in recent times may be due to an increase in trades not being done with the agent on a deal).
Trevor Williams, Visiting Professor, Chief Economist TW Consultancy and co-founder FXGuard, then provided an overview of the economy and what the loan markets can expect in 2025. Mr. Wiliams started by quoting Vladimir Lenin, “There are decades where nothing happens; and there are weeks where decades happen.” Definitely something to contemplate in the current economic environment. Global conflicts, a technological revolution, and climate change is all happening simultaneously, and together they will result in societal dislocation and the worker shortage intensifying. All of this is leading to a rise in disruptive effects across the geopolitical arena. Fortunately, consumer and business confidence is robust and are rising together across the world. Developing economies are growing at 2 – 2.5 times as fast as developed economies. Growth on average is predicted to be above 3% this year, and importantly, that growth is primarily fueled by Asia and the other developing economies. Reduction in trade barriers will lead to a growth spurt. Surprisingly, the US and Canada’s contribution to global growth is small in comparison so fortunately the Trump administration’s tariffs will have less of an impact on the global economy.
Despite that, the pace of global growth and productivity are slowing. Reduced trade openness and slower productivity gains have resulted in the era of ever more globalization drawing to an end. Trade has in fact stagnated since 2008. Thanks in part to the growth in an undocumented labor force, the US’s economic growth has outpaced the other G7 economies. Global trade growth has picked up since 2023 primarily in Asia. With inflation coming down, interest rates will fall around the globe, and the cost of capital will decline in the year ahead. Fortunately, the recovery is firmly established, and the tariff pressures will not stop the recovery from happening. We can unlock further growth if we are willing to make the hard decisions at the top political level.
Amelia Slocombe of the LMA then moderated the panel on Liability Management Transactions (LMTs) (also referred to as Liability Management Exercises) with Lewis Grimm of Jones Day, Yushan Ng of Milbank, and Jessica Reiss of Covenant Review. LMTs are a challenge and will eventually erode confidence in our market. LMTs’ commercial objectives fall into a few different categories. First, the sponsor is essentially finding ways to invest priming debt to bridge the borrower’s liquidity problems and that has been happening forever. Second, this involves dealing with near term maturities in a way that involves not speaking to the top tier not borrowing new money but giving advantage to creditors with temporal seniority. Third, looking at negotiated gaps in the documentation.
After noting the evolution of LMTs, the panelists turned to the comparison between th US and European markets. In the US, there is a general trend towards more protective language. In Asia and Australia, these LMTs have not been successful. GenesisCare and Healthscope were two deals in Australia where the borrower tried to execute a Chewy-like transaction but was forced to dial it back. There is more of a cultural refusal to see that happen in those jurisdictions, with the interaction of lenders likely to become more consensual in Australia. Fortunately, the US is also seeing more consensual deals too.
A cooperation agreement (or coop agreement) is an agreement amongst an ad hoc group of lenders whereby such lenders band together with the goal of obtaining a favorable transaction with a stressed/distressed company involving such company’s indebtedness. Under a coop agreement, an entity agrees it will not enter a transaction away from the group and will only enter an agreement with the group. However, an entity that is part of a coop agreement is not required to participate in an “approved transaction”. Notably, the borrower is not part of the coop agreement. Coop agreements may be used both offensively and defensively. Provided it does not address new money and if it stays with the management of the existing debt, it probably raises no anti-competitive issues in Europe.
The audience then listened to the fireside chat, Regulatory Considerations around Loan Markets, led by Scott McMunn chatting with Lee Foulger of the Bank of England. Mr. McMunn noted the importance of the Association having a close relationship with its regulators and was grateful for Mr. Foulger taking his time to speak at the conference. Mr. Foulger is the director of financial stability strategy and risk at the Bank of England and noted that in his role he looks at the banking system and ensures that lessons learned after the Global Financial Crisis are not forgotten and the ways the issues had been addressed remain in place. On leveraged finance, they are looking not just at bank finance but also at the increase in private credit because of its rapid growth, its growing importance in corporate lending, and its connections with banks and the insurance sector. The bank strives to shine a light on sectors that have less information available and are less transparent, such as private credit. The role of the LMA is important and the Bank of England very much appreciates the work of the LMA. The Bank of England thinks of the system as a whole and the LMA provides helpful information and serves as a useful conduit in that regard.
The next panel, The Growth of Private Corporate Credit – No End in Sight, was chaired by the LSTA’s Tess Virmani with Dan Matthews of SMBC Bank International, Bradley Rogoff of Barclays Bank and Natalia Tsitoura of Apollo Management International. Private credit is a huge focal point for market participants and regulators and will continue to grow; private credit, including direct lending, ultimately, gives the borrower another credit option. Estimates differ on the current size of global private corporate credit and range from $1.5 trillion to $3 trillion, but its past performance and continued growth trajectory is certain – as is increased scrutiny. A conservative estimate of $1.7 trillion has been given for the size of private credit, but that number contemplates that not all that amount has been invested, with perhaps $1.2 trillion invested. In Europe corporate lending is going off bank balance sheets and some is moving into private credit. In the current conditions and with overall default rates inching up in Europe, borrowers have had to adapt to the conditions and be resilient. 75% of European deals have a PIK option, and the US is fast approaching that number for its deals too. PIK can be used not just in times of stress. There may be legitimate reasons for a company to use PIK. It may be PIK by design when interest rates are high, and cash accessibility is low.
The final panel of the day, Trends in CLOs, was chaired by the LSTA’s CEO Sean Griffin with panelists, Mehdi Kashani of Arini Capital Management, Matthew Layton of Pearl Diver Capital, Conor O’Toole of Deutsche Bank, Denis Struc of Henderson Global Investors, and Tommy Wong of Oak Hill Advisors. U.S. and European CLO issuance hit record levels in 2024, but refinancings and resets were a significant portion of that activity. $494 billion of CLOs was issued in the US in 2024, and CLOs have been on a robust pace in 2025, but again those numbers include refinancings and resets. The panelists noted that trading in the secondary was “a great place to fish” in 2024. Participants should remember that the volumes that trade in the secondary market are the same as the primary so they must also focus on the primary, and CLO tranche investors are now seeing better value in the primary market. With the advent of ETFs, the CLO asset class has undergone a maturation which has given the class credibility; it has indeed performed well over the years (the 2022 / 2023 cycle was different because no loans were being originated, and a significant portion of the CLO market was amortizing). Notably, research houses are predicting record issuance in 2025. With ETFs coming into the fold, there is a broadening of comfort with the asst class, and even state pension funds are more frequently investing in CLOs.
The final speaker of the day was Keynote Speaker, David Chmiel of Global Torchlight who delivered his keynote address, “The Year of Elections is Over: Now What?” It was a geo-political state of the world address in which Chmiel discussed the election results around the world and how the results could impact the corporate loan markets. Chmiel focused on the aftermath of the elections, and he noted that the bigger risk is not how voters decided to cast their ballot but how the ones who have been elected now implement their policies. When asked by the Ipsos survey whether their country was headed in the right direction, the number of those who thought it was in Germany and France declined dramatically. By contrast, the US has seen a healthy uptick compared to recent years. Whereas the new UK government had virtually no political honeymoon, and there was a pullback in supportive sentiment in the UK. In the Edelman survey people were asked if they thought the next generation would be better off. China, India, and Indonesia were the clear “winners” here, and the US was the only G7 country where more than 20% think that they will be. In some ways, the Trump administration may be acting beyond public opinion – there is little room for the Trump administration not to be blamed for any negative impact from their decisions.
The Trump administration is focusing on border security and drug flows as justification for their tariffs. In Europe, there are disparate views on defence spending and whether it should decline. The US’s decision to vote with Russia on the Ukraine in the UN delivered a stark message leading many to question whether the US is returning to a period of isolationism. Support for an active US role in world affairs is at its lowest level since the end of the Vietnam war. Many in Europe still see the US as a necessary partner or ally, and European voters will need to decide if they accept cuts to their welfare spending, education, and healthcare to support defence spending.
The conference was excellent, and I encourage members to listen to the livestream recording if they missed it on March 5th. Members of both Associations will soon be able to register for the LSTA and LMA Joint Conference in NYC on May 15th. Click here for the slides.
