Private Lenders Should Stay Vigilant in 2021 – Corporate / Commercial Law

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Private lenders began 2020 facing the twin challenges of increased default risk and a lack of strong financial covenants, and the pandemic triggered a significant increase in defaults to 8.1% in the second quarter. However, third and fourth quarter borrower defaults were lower than expected following the COVID-fueled spike in the second quarter, in part due to cash injections into distressed borrowers by capital sponsors. federal investment and stimulus. Despite the continued economic hardships of the pandemic through 2020 and into 2021, default rates have remained and are expected to remain low, and private credit lenders and private equity sponsors have huge amounts of liquidity. to invest.

Another important development involved the continuation of maneuvers between groups of lenders, which we had planned for in 2020. Several disputes reached their climax with major disputes between lenders arising from liability management transactions by the main lenders, and we anticipate that these litigation will continue through 2021. In part, injections of funds by private equity sponsors in response to the pandemic have temporarily helped push back the lines of battle for private credit lenders from potential disputes. with borrowers in disputes between lenders. Two leading examples are the Is used to and
Boardriders case.

In 2021, it will be important for private lenders to remain vigilant on the risk of borrower default, and to reconsider their approach to inter-lender disputes.

Learn more about our top ten regulatory and litigation risks for private funds in 2021.

Private lenders should remain vigilant in 2021

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.

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