Last year lenders retrenched, for obvious reasons, this year began with a sense of cautious optimism in the UK where the government announced its post-pandemic “roadmap” says Mischcon de Reya real estate debt partner Omega Pool.
There is a sense that 2021 is a good year to originate debt. “We’ve seen a fair amount of capital that’s been raised specifically to target distress but also, more generally, debt strategies.”
“As a whole, the market is more resilient than just after the last crisis, probably as a result of the variety of lenders that now operate lower average LTVs, and probably less covenant-light loans than we saw last time round,” she explained to Real Asset Insight’s Richard Betts.
However, she said that this is the average position and, addressing individual cases, there is still a funding gap in the market which could be as much as 17% of outstanding loans.
“So, yes, I do think that we’re going to see a period of distress,” she added.
Last year saw government support and lenders showed a degree of forebearance, but “once this stasis starts to unravel we’ll see more distress,” Pool said, adding that the extent will differ depending upon the asset class
Alternative lenders have emerged either to acquire non-performing loans or recapitalise them.
“We’re expecting it’s going to catalyse a secondary debt market,” she said which will help banks remove problem loans from their books, but there will be other innovative asset-backed loan strategies which allow sponsors to source finance against balance sheet assets and cash flows.
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