Haynes and Boone released its first-ever Fund Finance Annual Report, which revealed an industry cautiously optimistic about growth despite facing headwinds, including rising interest rates and market disruptions.
Even after the turbulent market of 2023, marked by bank failures and SOFR climbing more than 100 bps, 74% of banks, sponsors and law firms in Haynes Boone’s report expect their institution to experience some growth in the coming year, and 63% predict overall market growth.
The report noted a significant increase in pricing for subscription line facilities, with margins rising more than 17% throughout 2023. Survey data showed in Q4/23, 50% of financings had a spread between 226 and 250 bps. Nearly half of market participants, however, expect pricing to stabilize in the next six months, with 35% expecting a slight decrease.
“The recent volatility in the market has understandably raised concerns about the future of fund finance,” Aleks Kopec, a partner in Haynes Boone’s fund finance practice group, said. “But our data shows that subscription lines remain valuable tools for sponsors, and they have historically proven resilient even through periods of higher interest rates.”
The report shows after a period of shorter deals, subscription line tenors are lengthening, with more two-year facilities and larger potential sizes through accordion options. Refinancing activity is up due to market shifts, while favorable pricing of uncommitted facilities is attracting borrowers.
NAV financings are also gaining traction despite recent market challenges, offering crucial liquidity to portfolio companies even as concerns linger about transparency and loan terms.
The report draws from three sources. The bulk of the data is fresh from a January survey on pricing and market expectations, which received responses from more than 120 individuals from 61 banks, sponsors and law firms. The Haynes Boone annual report also pulled from a live poll conducted at an industry event in November 2023, with the firm’s internal data on closed deals providing context and trends.
The report includes 26 charts and insights on pricing, subscription line facilities, NAV financings and the market outlook for 2024.
