FTI Consulting U.S. Loan Market Survey

Lenders Are Cautiously Optimistic for 2021, But Concerns Remain

WASHINGTON, April 13, 2021 (GLOBE NEWSWIRE) -- FTI Consulting, Inc. (NYSE: FCN) today released the findings of its 2021 U.S. Loan Market Survey, which provides a glimpse into bank and non-bank lenders’ market perspectives against the backdrop of an aggressive COVID-19 vaccine rollout and a second major pandemic relief bill recently passed by Congress.

According to the survey, which was conducted from February 22 to March 12, less than a majority (41%) of respondents expect strong economic growth (real GDP > 4%) this year, yet 70% said that the effects of Federal Reserve policy actions and benign credit market conditions will dampen default and restructuring activity for up to one year. Despite this, only 25% of respondents expect loan default and workout activity will be sharply lower this year, with most expecting such activity to be robust or above average in 2021.

“The disruptive economic effects of COVID-19 in the U.S. are still manifest today. With a majority of respondents saying that loans in workout were primarily driven by the impact of the virus, we don’t expect the post-COVID recovery to be a quick one for severely afflicted industries,” said Sanjeev Khemlani, a Senior Managing Director and Leader of the Senior Lender Advisory practice within the Corporate Finance & Restructuring segment at FTI Consulting. “However, Fed intervention in credit markets has revved up the flow of capital to large speculative-grade borrowers. As challenged as some sectors are, most have been able to tap the credit markets, and respondents tell us this will reduce default activity in the year ahead. Ultimately, whether these actions are sufficient to permanently avert defaults and workouts or merely defer them remains to be seen.”

Key findings from the survey include:

• 52% of respondents said that loans actively managed by their workout groups were driven by COVID-19 effects, more than double the number of any other attributable cause.
• 49% of respondents believe that most Americans won’t begin to return to pre-COVID lifestyles any sooner than the first quarter of 2022. Furthermore, 47% also expect that most Americans will choose to live differently than they did pre-COVID, though bank lenders were notably more likely to believe so than non-bank lenders.
• Nearly 85% of respondents believe that temporary covenant waivers provided to borrowers in 2020 due to COVID-19 will have to be extended in 2021.
• Despite expectations of fewer loan defaults in 2021, a plurality of respondents (40%) still anticipate that loans monitored by their workout groups will increase this year.
• 58% of respondents expect another “Black Swan” event within five years, with nearly one-third saying such an event will occur within three years.