Most of 2021 was characterized by free-flowing capital, as government aid propped up economies in response to COVID-19. Low interest rates and other central bank stimulus measures contributed to an environment that helped see many companies through challenging times. But as 2022 neared, governments were set to withdraw aid and inflation had risen, creating uncertainty.
Against this evolving backdrop, we advised our clients, including banks, alternative capital providers, listed corporations, startups and sovereigns, on a range of financing transactions, restructurings, workouts and regulatory matters, and represented them in litigation. Below are some of the developments that drove business.
Better options for more companies
After soaring in the immediate aftermath of COVID-19, US corporate bankruptcies fell to historic lows in 2021. One of the pandemic’s first and most high-profile chapter 11 cases wrapped up in 2021 with Hertz emerging from bankruptcy with a lower cost of capital and a structure that afforded stability and greater profitability than before. In Europe, restructurings were down significantly compared to 2020.
As governments and central banks around the world pumped money into their economies in the wake of COVID-19 and interest rates sat at near zero, companies that faced financial challenges were able to refinance or take on more debt. Others avoided bankruptcies and full-blown restructurings through a liability management exercise. But rising inflation and the possibility of higher interest rates will add to the challenges for financially distressed companies.
Leveraged financing activity surges
Global leveraged financing activity spiked in 2021, driven largely by refinancing and repricing during the first half of the year, and M&A and buyout activity in the second. Across regions, interest in a range of sustainability-linked debt products also hit new highs.
In the US, leveraged financing issuance was up overall. Loan activity drove the uptick, climbing from US$861.7 billion in 2020 to US$1.4 trillion in 2021. High yield bond issuance held steady, rising just slightly from US$428.3 billion to US$429.7 billion. Putting these numbers into context, high yield bond issuance hit a five-year high in 2020, and 2021 issuance remained well above pre-pandemic levels.
Europe saw year-on-year leveraged loan issuance climb by more than a quarter in 2021, to €289.7 billion in 2021. The region’s high yield bond markets were even more enthusiastic, with issuance for the year hitting €148 billion, up 47 percent over 2020.
And in the Asia-Pacific region (data excludes Japan), debt markets saw strong growth. Combined high yield bond and leveraged and non-leveraged loan issuance rose from US$422.3 billion in 2020, to US$498 billion in 2021. These gains occurred despite ongoing pandemic-induced disruptions in China’s real estate market, which were offset by a resilient loan market and revived PE activity.
SPAC market matures and continues to thrive
SPAC IPOs, which contributed to the global IPO boom that began in early 2021, had another strong year. The market for these deals, in which a company with no business operations is formed solely to raise capital through an IPO to acquire an existing company, cooled following a record first quarter. But this was foreseeable given the unsustainable pace at which these companies were being formed. In addition, SPAC sponsors and investors may have grown more cautious as the prospect of possible SEC regulation loomed. Still, by the end of 2021, 610 US SPACs had raised US$153.22 billion, up from the 245 deals that raised US$80.37 billion in 2020.
As more and more SPACs came of age, de-SPAC transactions, in which the SPAC merges with the target company, also soared in the US. In 2021, 221 de-SPAC transactions were valued at US$403.63 billion, compared to 92 such transactions worth US$139.18 billion in 2020. While SPACs remained largely a US phenomenon, global interest grew. The trend took off in Israel, which saw a boom in SPACs, as US-registered cash shells began scooping up assets and the Israeli Securities Authority set ground rules to open up the Tel Aviv Stock Exchange to local SPACs.
In Europe, SPAC activity was relatively modest but on the rise. The overall number and value of deals climbed steadily, with listings on key markets including Amsterdam and Frankfurt. In addition, deal sizes hit new highs and EU and UK regulators weighed in. The SPAC wave also reached the Asia-Pacific region where jurisdictions including Singapore and Hong Kong introduced their own regimes to capitalize on the momentum.
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