Credit Markets Update October 2022

Read more about recent credit markets activity

Mike Rudolph

Mike Rudolph

Managing Director, Corporate Finance, KPMG US

+1 312-665-1442

Market volatility has slowed overall lending activity, making it more difficult for middle market PEs/Corporates to obtain low priced debt, however, providing opportunity for well capitalized capital providers

  • Lenders have become increasingly less aggressive on new deal activity due to macroeconomic headwinds, market uncertainty, continued supply chain issues and geopolitical turmoil while refinancing activity came to a halt with continuously rising interest rates
    • These dynamics led to a significant decline in loan volume during Q3 2022 - new-issue leveraged loan volume decreased to $67.2 billion, a decline of 48% from last quarter and 67% from the third quarter of 2021
  • The 350+ increase in the SOFR base rate has shifted lender focus to portfolio companies as higher interest expense puts pressure on cash flows and liquidity
    • Default rates are at 0.9% (by principal amount), the highest level since June 2021 and are expected to increase
    • Note that SOFR Floors were non-existent in 2021 in a low-rate environment, but they have become increasingly common in 2022:     Banks ~2.00%; Non-banks ~2.50%
  • The level of dry powder in the private credit market remains at an all-time high (~$250 billion) so lenders will continue to selectively evaluate new loan opportunities supporting only their top private equity relationships
    • Providing opportunities for many mid sized credit funds as private equity groups will need to broaden its lender support
  • Opportunistic capital solutions – like junior debt and structured equity – could soon be in strong demand as fixed pricing, PIK interest, and convertible features are more accommodative to liquidity constrained companies
    • Non-bank ABL providers who can be more aggressive than regulated banks will see plenty of opportunities as banks resolve underperforming portfolio companies
  • ‘Storied’ credits looking to secure funding will undoubtedly experience a more difficult environment throughout the remainder of 2022 and early 2023

New Issue Leveraged Loan Volume ($bn)

Pricing Range (Non-Bank; Sub-$10mm EBITDA)

*Denotes spread over SOFR.



Secured Overnight Financing Rate (YTD Trend)

*CME 90 day Term SOFR Rate as of October 11, 2022.


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