Credit markets performed well in 2024, supported by an improving macroeconomic backdrop and robust demand from almost all segments of the market.

While borrowing costs remain high relative to recent years, falling inflation and a subsequent easing of monetary policy combined with an improving economic outlook to deliver favourable conditions for financing activity. This allowed corporate treasurers to take prudent action to ease near-term maturity pressures across both the investment grade and high yield markets.

Bond issuance was especially strong last year, underpinned by a refinancing wave that reduced near-term maturity wall pressures for corporates and for sub-investment grade issuers in particular, and which saw almost all areas of the bond market record strong year-on-year growth. We also saw good momentum across the broadly syndicated loan market, as the product responded to interest rate cuts and increased demand from corporates and financial sponsors.

Focus switches to growth

This momentum is expected to continue into 2025. We expect the focus to gradually shift from refinancing and corporate housekeeping towards support for growth strategies, as corporates take advantage of lower borrowing costs to fund expansion. Financing should support both organic and inorganic growth, with capital expenditure rising across sectors that support global trends, such as the transition to net zero, and the rise of M&A on the corporate agenda.

Markets have factored in an anticipated near-term rise in inflation, driven by certain policies outlined by the Trump administration and measures announced in the UK budget. Regarding expected changes in the US, the counterbalance is the expectation that the new administration will cut regulation and usher in a more business-friendly environment, which should promote dealmaking with positive implications for the acquisition and leveraged finance markets.

In respect of leveraged finance, the gradual return of banks to this corner of the market has seen both spreads tighten and terms soften. While we expect private credit to continue to fund a significant proportion of buyouts in 2025, the emergence of a more balanced financing platform should favour borrowers and encourage sponsors to embark on larger, more complex deals. We also expect to see more hybrid structures in large leveraged deals, with private credit funds providing junior tranches and the senior portion of funding from banks.

Sustainable finance

The sustainable finance market showed more positive momentum in 2024, driven by activity in Europe, which accounted for around 53% of global sustainable bond market issuance, and around 41% of sustainable borrowing.

While there continues to be good investor demand for these products, and broadly compelling reasons for corporates to use sustainable instruments, we started to see activity decline in the second half of the year. There are a number of drivers for this, key among them being negative perceptions of the structuring and reporting requirements that sit alongside sustainability labelled debt and the associated costs together with increased concerns about green-washing.

The new EU Green Bond Standard came into effect in December. While not obligatory, the standard potentially offers issuers and investors greater transparency and comfort when issuing green bonds, although we expect that there will be no immediate rush for many corporate issuers to use the label, in part due to the requirements the EU Green Bond Standard layers on top of the existing market labels such as the ICMA principles and concerns around useability of the EU Taxonomy.

The potential to develop and expand the nascent transition finance market – in other words, financing for transitioning entities and transition activities has been a key area of focus. The market is currently digesting the findings and recommendations of the Transition Finance Market Review. We expect further developments in this space in the new year.

Demand for EUR and GBP paper

Tighter spreads and healthy yields encouraged issuers to return to the bond market last year, with issuance volumes up by almost 20% compared to 2023. Throughout 2024 there was strong investor demand for Euro paper, and in the second half of the year for sterling supply. Strong investor demand saw books on a number of sizable investment grade deals covered three or four times, including Lonza’s EUR1 billion 12-year print. We expect this momentum to continue into 2025.

In addition, appetite for Euro-denominated bonds from US multinationals looks set to increase, due in part to the relative cheapness of raising capital in Euros, but also in support of acquisition financing, which we expect to pick up as 2025 unfolds. 

Private placements continued to perform strongly. In 2024, the US private placement market experienced a revival, delivering one of the most active markets in years, driven by strong demand from investors diversifying across long tenors. This demand has not yet been fulfilled, and we expect there to be ample opportunities for investment grade corporates to bring opportunistic deals to the market throughout the year.

Securitisations

Global structured finance markets recorded solid growth in 2024, driven by robust asset-backed and residential mortgage-backed markets, and a sharp increase in collateralised loan obligation issuance. We expect to see healthy issuance levels in 2025, assuming interest rates continue to fall, as this should stimulate consumer activity in the areas that fuel origination of the underlying products. The upcoming Basel reforms are also expected to continue to drive the current wave of “significant risk transfer” transactions by banks in the UK and the rest of Europe.

In the European Union, efforts continue to reinvigorate the EU securitisation market, which is increasingly seen as an important engine of the real economy. In September, Mario Draghi’s report on the future of EU competitiveness added to calls for further reform of the European securitisation regulatory regime, with the goal of strengthening bank lending and providing additional finance for investment across the bloc. A subsequent consultation from the European Commission, which closed on 4 December, has given a broad range of market participants an opportunity to help shape the future of the market and deliver a more effective framework.

In the UK, the auto loan finance securitisation market (and, to some extent, the wider asset-backed finance market), has been adversely affected by a surprisingly broad ruling from the Court of Appeal on the subject of broker commissions. It is hoped that steps by the FCA, and clarification of the scope of the ruling from the UK Supreme Court, will help stabilise the position and bring greater certainty to the scope of lenders’ and brokers’ duties.

Special situations and Restructuring

There has been a steady level of activity in the special situations and restructuring market through 2024, with an important milestone being reached: the first visit of a Part 26A Restructuring Plan to the Court of Appeal in Adler providing some helpful guidance on how the procedure should be used going forward. That is just as well, as a number of plans continue to be litigated (some successfully). Outside of formal restructuring, we have seen a number of European companies that might otherwise have been on the brink of a restructuring continue to access liquidity to achieve challenging refinancings, often times accompanied with some level of liability management, or use M&A and/or private capital to avoid a restructuring.

Looking into 2025, we expect those trends to continue with more leveraged companies being required to consider the full range of strategic options as we face a difficult European macro environment, political stasis in certain key jurisdictions and the threat of potentially significant US policy choices. In terms of sectors, one obvious area of activity will be infrastructure, where all eyes will be on the water sector including Thames Water as it continues with its restructuring process. However, a range of other sectors will face headwinds: certain retail and hospitality businesses have been adversely affected by the recent UK Budget; high energy prices and ESG policy may continue to negatively impact certain industrials and automakers; and, following the Swedish battery developer Northvolt’s entry into Chapter 11, there may be further restructurings in the “ESG” space where policy in the UK and elsewhere keeps changing and investment returns have not lived up to ambitions.