LevFin Insights | EMEA Insight: Floor but no Ceiling: European Direct Lenders Keen to Prepare Loan Agreements for Falling Interest Rates
Aug 2023
Originally posted by LevFin Insights on August 7, 2023.
As inflation is easing and many are predicting interest rates will decline in the near term, direct lenders are requesting 1-2% floors in loan negotiations to avoid any further challenges caused by monetary regulations.
Richard Olson, Managing Director in Lincoln’s Valuations & Opinions Group, commented, “Base rate floors are becoming increasingly important in loan negotiations.”
If interest rates decrease in the next 12-18 months, a 1-2% floor could benefit lenders. This could be a reason why the floor is top-of-mind in the private debt space.
“We have started to see funds negotiating a floor of 1%-2% and we expect to see more floors in the future,” Richard added.
Over the last decade since interest rates were low, floors in European private credit loan agreements were uncommon. 1% floors were commonplace 10 years ago, so this request is not a new concept in the debt market.
Summary
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Richard Olson, Managing Director in Lincoln International’s Valuations & Opinions Group, recently shared with LevFin Insights that base rate floors are becoming common and important in loan negotiations.
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