Commercial lending: What’s the latest outlook?

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As the year progresses, the current trickle of refinances is expected to escalate into a “tsunami,” Horn said, with loans modified in 2023 set to be added to the regular flow of refinancing that needs to happen. “[At the] end of Q4 2024 and all of 2025, we expect that it’s going to be a very, very busy end of the year on the commercial financing side,” he said.

High-quality deals, such as those in which the sponsor has a deep and productive relationship with their banking institution, are usually safe for the borrower because banks are more flexible on those loan types.

Which types of commercial loans are currently the safest?

An interesting aspect of the current market, though, is that the second type of deal that’s seeing the most flexibility are those in the lowest tier. “The worst deals on the balance sheet are actually those that are getting sort of equal flexibility,” Horn said, “because the financial institutions don’t want to recognize the loss of selling those.

“So really bad deals are actually staying on the books for longer as well. What that means is those getting squeezed, who are actually getting forced out, are the deals that are performing OK – transactions that might just be slightly lower than the expected debt yield or have reached maturity.”

A “duopoly” of sorts is at play, he said – the very worst deals are staying on balance sheets for longer, while those in the middle and performing moderately well are being forced out.



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