For Ian Borman, 2013 saw the merger of his law firm SJ Berwin with Sino-Australian peer King & Wood Mallesons. As co-head of the combined firm's international finance practice, he had a front-row seat for what's been a year of significant growth for the private debt industry.
Do they think there'll be a shift towards M&A rather than refinancing in 2014?
Just as we were pigeonholing 2013 as a refinancing year, there was a shift in the fourth quarter to a transactional focus. It remains to be seen whether that momentum will carry through to the new year, but the industry needs 2014 to be a deal-doing year. The question is whether there'll be sufficient dealflow to meet the amount of capital that's been raised.
So you think private debt funds could struggle to deploy capital?
If transactional activity ticks up, there's likely to be a battle between banks and private debt funds. Banks will attempt to intercept dealflow and package debt in liquid, securitised products. Private debt funds will have to fight that trend.
What could happen to address that supply / demand imbalance?
Governments could take money out of the system – that would balance out interest rates. The problem then is that banks start to become more competitive, and it becomes even more of a battleground.
The problem at the moment is that many deals are being done with non-leveraged buyers – corporates. We really need private equity firms to get their act together. The private equity industry has a weight of capital to deploy too.
There's been a huge amount of refinancing activity this year. Do you there's much left to do or have portfolios been tidied up from a debt perspective?
Amend and extends have kicked most things far enough down the road to give companies plenty of headroom. Default rates have been very low, and I see that continuing next year. Sure, if interest rates tick up markedly we'll start to see more defaults, but while I think we'll see interest rates start to rise, it won't be enough to have a major effect on the market.
How will Europe fare next year from a macroeconomic perspective?
European expansion is great – companies looking to export to China and so on. But the Southern hemisphere has caught a bit of a cold, so we could see some blowback from the slowdown in Asia.