Notwithstanding global macro headwinds, lenders are confident in the availability of capital to lend, writes Hazel Cryan, Head of Debt Advisory at KPMG Ireland.

KPMG recently conducted a survey of Ireland’s corporate lenders, examining their current lending appetite and what trends they see for the corporate lending landscape in 2022. Corporate lenders remain positive despite global challenges, and in particular cited Ireland’s healthcare, technology, agribusiness & food, and financial services sectors as being particularly attractive to lend to.

High street lenders are active, competitive and continue to play a central role in the Irish lending landscape. However, 96% of corporate lenders surveyed believe that alternative lenders will have an enhanced role to play in 2022. While historically, alternative lenders mainly offered higher-cost and higher-leverage lending, we’re increasingly seeing alternative lenders competing with high street lenders on more mainstream activity, having shifted down the risk curve to address demand for alternative senior lending products.

Lending activity drivers

Alternative lenders identified M&A activity as their main driver of this growth, with two-thirds stating it as their number one expected activity in 2022. This compares with just 17% of high street lenders, who stated that expansionary capital expenditure (33%) and refinancing existing debt (33%) were their main two drivers of lending activity in 2022.

The Irish banks are critical funders of M&A and are the first port of call for most borrowers. The growth in capital available to deploy by alternative lenders has widened the options open to deal makers, particularly when higher leverage or enhanced flexibility is required to get a deal done. We have also seen asset based lending being used very effectively to support Management Buy Outs and transactions across a range of sectors.

In Association with

Over the last two years, borrowers were supported by their lenders through pandemic-related business shutdowns with payment breaks and covenant waivers. With Covid-19 business support winding down, it is positive to see our survey respondents state that distressed debt and restructuring counted only for a small proportion of expected lending activity. This is testament to the resilience of both the Irish corporate sector, and our institutions’ lending practices.

ESG AGENDA

Environmental, Social, and Governance (ESG) is an increasingly important agenda item for both lenders and borrowers, with over 80% of lenders we surveyed stating that they were actively looking for ESG-linked lending opportunities. Four out of five high street and alternative lenders are willing to link ESG targets to pricing.

One of the core objectives of EU climate policy is the redirection of capital flows. As such, banks and other lenders are being increasingly influenced by rules and regulations which in time will make it significantly harder and more expensive to lend to businesses and sectors that are seen as unsustainable. These rules will also make it cheaper and easier to lend to enterprises that are putting sustainability at the core of what they do.

ESG goes beyond regulation, however. At a societal level, there are increasing pressures for businesses across all sectors to work towards a more sustainable future. It’s therefore highly positive to see the corporate lending sector playing its part and actively working towards a greener future. This is particularly evidenced by rewarding sustainable projects and activity, which should have a positive impact.