This second edition of The Lending and Secured Finance Review comes on the heels of a period of volatility and the result of the United Kingdom’s referendum on EU membership – a topic that, unsurprisingly, dominated headlines and impacted deal volumes in the months leading up to the referendum.
During 2014 and 2015, the loan markets grew against a backdrop of greater economic stability and the return of M&A activity in Europe and globally, and 2015 was in fact the busiest year for the EMEA region since the credit crisis. Between January and June 2016, however, the market contracted quite significantly – a combination of factors, including the collapse in oil prices, the slowdown in China and the prospect of Brexit all contributed to chilling the global market for event-driven financings. Refinancing activity also fell in volume terms compared with previous years, many borrowers having sourced their needs for at least the next few years during the protracted period of favourable market conditions in 2014 and 2015.
In the aftermath of the referendum vote to leave the EU, corporate groups and other businesses (both domestic and overseas) face new risks and challenges that will need to be addressed, and the legal, regulatory and market outlook has been significantly altered, at least for the United Kingdom. At the time of writing, the shape of the United Kingdom’s future relationship with the EU remains unclear, and the immediate challenge for debt market participants is how best to weather the uncertain market conditions exacerbated by the prospect of Brexit.
Much of the legal and regulatory regime that underpins activities in the English-law financial markets is derived from EU directives and regulations. Over the longer term, there will be legal and regulatory changes affecting lending and secured finance activities and documentation, but the extent of those changes is debatable. The United Kingdom has supported most of the EU regulatory framework, many of its EU commitments are reflected in domestic law and many of the important aspects of EU regulation stem from G20 or other international commitments, which may limit the scope of any changes the government wishes to make in the longer term. Many EU provisions also apply on an EEA-wide basis, and would therefore continue to apply to the United Kingdom if its exit arrangements include remaining part of the EEA. The current expectation of many is that, upon Brexit, the United Kingdom, at least at first, will try to achieve equivalence with pre-existing EU rules in many areas, but this is a topic that will continue to require attention as the post-referendum regime develops.
The impact of Brexit on the availability of finance and the products on offer over the longer term is difficult to anticipate. There are no current indications that banks’ liquidity or funding positions have altered significantly, but it seems prudent to anticipate that lending criteria may tighten and banks will look closely at the impact of Brexit on their customers when approving new loans. Treasurers may focus again on alternative sources of finance. Pre-referendum, the involvement of direct lending funds, private placements and other alternatives to traditional bank finance was growing, supported by industry and government, but it remains to be seen whether this growth will continue.
This edition of The Lending and Secured Finance Review contains contributions from leading practitioners in 22 different countries and I would like to thank each of the contributors for taking the time to share their expertise on the developments in the corporate lending and secured finance markets in their respective jurisdictions, and on the challenges and opportunities facing market participants. I would also like to thank our publishers, without whom this Review would not have been possible.
I hope that the commentary that follows will serve as a useful source for practitioners and other readers.
Slaughter and May