Capital Markets Present Opportunities; Participants Adapting to Lending GuidelinesCIT Executive Shares Insights on State of the Capital Markets- Capital Markets are in Uncertain Period; Liquidity is Mixed with Hesitancy- Current Rates Present an Opportunity to Pursue Hedges- Challenges for Non-Traditional Lenders, Including CLOs and BDCs- Demand for Middle-Market Syndicated Loans Remains StrongThursday, May 12, 2016 08:30 AM
The final response from the lending community to the federal leveraged lending guidelines has worked itself through, and, as a result, total leverage has come in quite a bit
NEW YORK--(BUSINESS WIRE)--The current state of the capital markets is unclear, with pockets of liquidity and uncertainty with regards to what deals can get done. Nonetheless, the Federal Reserve’s interest rate increase has not had a dramatic effect, and demand for middle market syndicated loans remains strong. These are some of the observations from Neil Wessan, Group Head and Managing Director, CIT Capital Markets, a division of CIT Group Inc.(NYSE:CIT), a leading provider of commercial lending and leasing services, in “Capital Markets Outlook: Opportunity Amid Uncertainty,” (cit.com/wessan), the latest piece of market intelligence in a series of in-depth CIT executive Q&As.
“The final response from the lending community to the federal leveraged lending guidelines has worked itself through, and, as a result, total leverage has come in quite a bit,” said Wessan. “I think this presents a lot of opportunities for both issuers and investors in 2016. Issuers who need capital and are willing to be prudent about the total amount of leverage they put on will find a strong fit for their companies.”
Some of the other trends Wessan expands upon include:
- Challenges for Non-Traditional Lenders: Collateralized loan obligation (CLO) issuances have also been dramatically affected by the new equity guidelines and have become less active in the middle market and the broader market. At the same time, business development companies (BDC) have a problem in that most are now trading below net asset value and are pulling back.
- Muted Impact of Interest Rate Hike, More Increases Expected: So far, the rate increase has not had a dramatic effect on the lending market. Many transactions have LIBOR floors in them, so rate increases haven't had an effect yet on the cost of funding to the company. The Fed may try to move again on interest rates before the end of this year if lower energy prices do not cause broad, sustained economic problems.
- Opportunities to Pursue an Interest Rate Hedge Remain: For companies, hedging interest rate risk is still relatively inexpensive. Given the current shape of the yield curve, LIBOR rates could trend up. As such, buying an interest rate hedge can still be viewed as both prudent protection and affordable.
- Demand for Middle-Market Syndicated Loans Remains Strong: In the middle market, there's good demand for syndicated loans. In the broader market, there is not. As a result, there have been very few broad-market transactions launched this year. There's been much more activity in the pro-rata, or bank, market, where activity is likely to continue into the next quarter.
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Founded in 1908, CIT (NYSE: CIT) is a financial holding company with more than $65 billion in assets. Its principal bank subsidiary, CIT Bank, N.A., (Member FDIC, Equal Housing Lender) has more than $30 billion of deposits and more than $40 billion of assets. It provides financing, leasing and advisory services principally to middle market companies across a wide variety of industries primarily in North America, and equipment financing and leasing solutions to the transportation sector. It also offers products and services to consumers through its Internet bank franchise and a network of retail branches in Southern California, operating as OneWest Bank, a division of CIT Bank, N.A. cit.com
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