Inflation, uncertainty, bank closures, and ongoing interest rate hikes have prompted a recent survey conducted by FTI Consulting Inc. to reveal “the most cautionary outlook seen in the five years that FTI
Consulting has conducted the survey” according to a press release from the company. 71% of those surveyed believe that there will be an economic recession in 2023 or 2024, while 74% anticipate Federal Reserve base interest rates increasing for much or most of 2023.
Credit-market conditions are expected to continue contracting with wider pricing spreads and restrictions on credit availability, as well as loan underwriting standards tightening even further over the next year; no respondents said that lending standards will loosen during this time period. Loan defaults and workout activity is predicted to be higher than 2022 levels too.
Uncertainty respondents expressed common concerns about prior tax lending standards and loose credit-documentation terms which could provide struggling borrowers with financing maneuvers subverting conventional lender protections whilst diminishing collateral strength if the economy weakens further still. Retail was identified as being at risk of distress over the next 12 months followed by real estate/REITs sectors respectively; the consistent dialogue between lenders clients/contacts has been observed regarding recession worries & credit tightening risks amplified through recent bank failures too..
Chuck Carroll, Senior Managing Director & Leader of Senior Lender Advisory practice at FTI Consulting commented: “Uncertainty unlike previous years, a large majority of respondents expect leveraged loan underwriting standards will be more restrictive in the year ahead” Dave Katz (Senior Lending Manager) added: “The responses in this year’s survey are consistent with recent dialogue we have had with our lender clients and contacts…with recession concerns &credit tightening risks amplified by [recent] bank failures.”
