2018 was a record year for the syndicated loan market. According to LPC, overall U.S. syndicated lending (including investment grade loans) topped $2.5 trillion for the first time ever. This is entirely due to investment grade lending which surpassed $1 trillion. Looking at the leveraged loan space, nominal leveraged lending was down, but real money lending (M&A, LBOs) was up. This is the expected result in a softer market like the one we saw in 2018, because refinancings decline. LPC recorded leveraged lending as declining by 12% in 2018. Institutional lending dropped more materially, falling 21% to $730 billion. These numbers may not tell the whole story, however. In a market where spreads were flat to wider, it was the optional refinancings that evaporated, leaving only the “real” lending. As merger activity rebounded, so did the financing supporting it. LPC saw $381 billion of leveraged M&A which surpassed the previous record in 2007. At $142 billion, LBO lending remained well short of record levels but was still the second strongest year tracked by LPC. The strong “real” lending observed also added considerably to the outstandings in the S&P/LSTA Leveraged Loan Index which climbed 20% to $1.15 trillion.
Looking at deal structure and terms, the borrower-friendly trend continued for most of the year due to the supply-demand imbalance in the market. Greater flexibility in terms and conditions was seen across the board, although terms began to tighten in December. It remains to be seen whether that will continue this year, but some market participants certainly hope that it does as covenant degradation is an area of increased lender focus.