The COVID-19 pandemic has halted the lending and M&A markets. It’s uncertain what recovery looks like or how long it will take to get there. That’s why Carl Marks Advisors polled more than 115 advisors, lenders, investors and executives about the current and future state of the lending and deal-making markets. Despite the markets’ slowdown, the survey revealed general optimism that the lending market will rebound this year, but respondents were in agreement that normalized deal activity will take much longer to come back.

Key Findings:

• Survey participants are generally optimistic about the prospects for a rebound in lending this year. More than 66% believe lending markets will re-open for well-capitalized middle-market companies by the end of 2020, and nearly 95% believe they will re-open by spring 2021.
• Survey participants are more pessimistic about a return to normalized deal-making activity. Only 28% believe it will return to some sense of “normal” by the end of 2020, and even more – 31% – believe deal-making activity won’t return to “normal” until Q2 2021 or later.
• The ability for middle market businesses to project accurate revenue and EBITDA performance is significantly impaired. 75% of respondents said that it would be impossible or very difficult for companies to forecast their second quarter and 2020 revenues and cash flows at the present time.
• 70% of respondents feel that the single biggest challenge, when it comes to a return to deal-making and closing new investments in 2020, is the inability to project revenues with confidence, followed by volatility in capital markets and irrational purchase multiples.
• Despite a large number of financing options available for today’s middle-market businesses, there no significant consensus around whether businesses will have the liquidity needed to re-start and fund their recovery following the COVID-19 shutdowns. Only 44% of respondents believe that the businesses they are familiar with would have the liquidity needed to re-start and fund recovery, while 27% said “No” and 28% are “Unsure.”
• The vast majority of respondents – 75% – believe the loan default rate among non-investment grade borrowers will reach or exceed 10% in the second half of 2020. This suggests that defaults of highly leveraged borrowers with non-investment grade debt will increase dramatically.
• Most survey participants – 63% – are reasonably optimistic that lenders will be more flexible and accommodating in handling non-accrual loans or covenant grace requests in the aftermath of COVID-19. Only 19% believe they will be less accommodating.
• 73% of respondents believe lenders will seek to “reset the market” in relation to leverage levels, pricing, and terms, based upon current events related to the coronavirus.