In February, Katten conducted a survey of 112 private credit industry professionals that showed how a large percentage of private equity investors and lenders in the private credit industry expect deal flow to increase in 2021 and are optimistic about several deal categories and sectors.
Initially hurt by the COVID-19 pandemic, private credit markets began to improve at the end of 2020. Katten surveyed lenders and private equity investors across various sectors, including financial services, information technology, consumer staples, communications, industrials and health care, about their outlook on deal flow, readiness to address the London Inter-Bank Offered Rate (LIBOR) phaseout and other issues of importance to the private credit industry.
Key findings from the survey include that 19 percent of private equity investors and 21 percent of lenders believe deal flow will increase by more than 30 percent in the market, nearly 65 percent of private equity investors and 41 percent of lenders said loan documents are more flexible than they were before the pandemic, and both private equity lenders and investors agreed that potential areas of growth could be found in sectors like financial services, information technology, communications services and health care.
Questions were also raised in the survey about whether the spirit of collaboration between lenders and investors will continue. Additionally, fewer than half of survey respondents said they were prepared to address the LIBOR phaseout.
“As it relates to LIBOR’s phaseout, we can expect the biggest banks and the largest institutions to move on this the fastest. But there are some real fears out there for moving first. You certainly wouldn’t want to hardwire something into loan documentation that turns out to be anything [other] than the market approach,” said partner and chair of Katten’s Private Credit Department, Michael Jacobson.