Already a member? We were thrilled to present ELFA's Annual Conference 2025 in collaboration with our co-hosts at Milbank. We brought together our members, partners and other market participants for a full day of panels and discussions. Thanks to our incredible speakers and thought-provoking discussions, we explored a wide range of critical topics shaping the leveraged finance market. Thank you to everyone who took part in the day.
Edward Eyerman, CEO of ELFA, opened the day by emphasising ELFA’s mission to facilitate transparency in our markets, reiterate our commitments to sustainability and uphold creditor rights in collaboration with all stakeholders. These principles remain central as markets continue to evolve, and stakeholders seek greater alignment.
• Capital markets are evolving, with record inflows marking the best of times, while weakening covenant terms, pricing pressure, and increasingly complex balance sheets may reflect the worst of times. • Collaboration across the financial ecosystem is essential. Debt syndication and capital raising require coordinated solutions, and cross-border partnerships with industry associations are key to helping promote transparency and harmonise best practices. • ELFA is launching a Restructuring Committee to support distressed companies and ensure that key debt terms such as “senior secured” and “pari passu” retain their meaning, reinforcing the need for disciplined underwriting and investor alignment.Matt King, Founder of Satori Insights and keynote speaker, shared his macro analysis:
• Market dynamics are undergoing structural shifts, with longer cycles led by asset prices rather than corporate fundamentals. Traditional valuation metrics have broken down, and credit creation has moved away from central banks toward financial engineering and private markets. • Liquidity is driving asset inflation, with too much capital chasing too few assets. Wealth is increasingly generated through leverage and refinancing rather than productivity, favouring highly leveraged assets regardless of balance sheet strength. • Financial engineering now dominates borrowing activity, with private equity sustaining returns through refinancings and weakened covenants. Debt investors face rising risks, including poor rating transitions and limited recovery prospects. • Systemic fragility is growing as easy money flows from opaque sources and speculative dynamics rely on sustained belief and liquidity. Monitoring credit flow, leverage, and capital destinations is critical to anticipating future instability.• Covenant erosion and increasingly borrower‑friendly documentation remain major concerns, with compressed timelines, virtual reviews, and limited transparency reducing the depth of due diligence and pricing accuracy.
• Effective pushback is most successful when focused on material issues, supported by strong investor–sponsor relationships, early engagement, and commercially balanced dialogue. • To counter covenant creep, investors should prioritise key risks, engage early with conviction, and maintain constructive communication, while leveraging tools and resources to manage time pressures. • While some convergence between loan and bond markets is visible, significant differences in standards and timing persist, making cross‑market dialogue and coordination essential for improving disclosure and consistency.• Liability Management Exercises (LMEs) have become a strategic tool for companies to restructure debt without triggering default. Techniques include uptiering, drop-downs, pari plus structures, and double-dip arrangements.
• Executing LMEs in Europe is more complex than in the US due to fragmented legal systems, director duties, and jurisdictional constraints. • Co-operation agreements help lenders coordinate, but create legal and compliance risks, especially in bond markets. Sponsor behaviour, reputation, and ownership structure significantly influence outcomes. • LMEs often act as a bridge to full restructurings. Investors must stay engaged, understand documentation, and consider voting thresholds and stakeholder dynamics to protect their positions.• Private credit has become a central pillar of corporate financing since the Global Financial Crisis, providing flexible, bespoke solutions and supporting long‑term investment in sectors such as infrastructure, power, and energy transition.
• Fundraising momentum continues to outpace public markets, with large managers attracting strong inflows, while institutional demand for investment‑grade private credit is rising as insurers and long‑term investors seek stable, durable returns. • Growth is being accelerated by structural innovations such as subscription lines, asset‑backed facilities, and NAV‑based financing, which deliver faster access to capital, greater flexibility, and attractive risk‑adjusted returns. • The asset class has demonstrated resilience through stress periods and is positioned for further expansion, but challenges around transparency, disclosure, valuation, and cross‑market consistency remain critical to its sustainable evolution.• CLO structuring is under pressure from arbitrage compression between funding costs and collateral spreads. Declining overcollateralisation coverage further challenges deal economics while investors continue to prioritise safety, clarity, and transparency.
• Issuance remains strong, with managers front-loading debt resets and investors seeking flexibility in bond structures to adapt to changing market conditions. Tail risks persist, but overall market resilience is evident, with limited impact noted on European CLOs from the First Brands default. • The investor base is expanding through CLO ETFs and potential UCITS eligibility, alongside product innovation such as private credit integration, synthetic CLOs, and other risk-transfer mechanisms. • Regulatory developments and changes in warehouse and collateral management are being addressed effectively. ELFA and other investor platforms continue to provide channels for investor feedback, helping guide regulatory developments and support market stability.• Settlement volumes hit record highs in Q3 2024, with global activity quadrupling. Settlement liquidity is at T+50 while trading liquidity remains stable. Settlement times vary widely, with the LMA averaging 48 days and the LSTA improving to 18–20 days.
• European transfer provisions are increasingly restrictive, including concentration limits, affiliate exclusions, and disenfranchisement clauses. ELFA’s Transferability Series, including the recently published Guidance on SFAs, continues to promote consistency and best practice. • Documentation standards and covenant definitions remain inconsistent, with excessive optionality making it difficult to anticipate which tools sponsors may use. Portability provisions are a growing concern, especially around backdoor mechanisms and minimum equity definitions. • European structures are less vulnerable to status erosion, and UK debt buyback provisions offer stronger investor protection than in the US. Investor education remains a challenge, with limited time to review documentation and a lack of sophistication across parts of the investor base. • The leveraged loan market is converging with private credit and high-yield bonds, with club deals and evergreen structures on the rise. Documentation drift, limited transparency, and time constraints continue to pressure investors. Third-party resources for document analysis remain an important source of investor education. Sustainability concerns persist amid supply-demand imbalances and sponsor influence, prompting calls for vigilance and integrity.• ESG integration is now a baseline expectation, with managers tailoring strategies to client preferences, strengthening engagement, and responding to pushback through clearer communication and exclusions. The ELFA ESG Fact Sheets have become a market standard, improving disclosure and consistency across sectors.
• Data and measurement challenges persist, especially for private companies and complex areas like biodiversity and climate impact. Investors are calling for more specific, actionable metrics to enhance transparency, comparability, and decision-making. • The European defence sector presents a nuanced ESG challenge, with rising scrutiny, blurred lines between risk-based and value-based exclusions, and growing allocations to Article 8 and 9 funds. The lack of a single sustainability standard across markets adds complexity amid shifting geopolitical realities. • ESG and DEI frameworks are increasingly intertwined, with regulatory classifications, transparency, and consistent exclusion policies seen as essential. Sustainability will continue to evolve through overlapping frameworks, requiring ongoing dialogue and alignment to meet investor expectations and maintain credibility.• Investment firms face increasing pressure to adopt AI and data-driven tools to enhance productivity and competitiveness. Delaying AI adoption may leave firms at a competitive disadvantage, but high costs, fast-moving technology, and concerns around data protocols, storage, and regulatory compliance are creating hesitation. Firms are increasingly focused on return on investment within a condensed time frame.
• Effective AI implementation requires rapid, results-oriented use projects supported by strong data management. Firms must be mindful of regulatory expectations, ensuring that data handling aligns with compliance standards. Small pilot initiatives, even if some fail, are essential for learning, refining approaches, and building scalable solutions. • Governance and fiduciary oversight remain critical. AI must be traceable, auditable, and properly supervised to mitigate hallucination risks and legal exposure. Strong data governance and clearly defined accountability roles, such as Chief Data Officers, are becoming necessary to ensure integrity, control, and regulatory alignment. • AI offers practical benefits in transaction evaluation, workflow efficiency, and data digitalisation. Success depends on targeted adoption, comprehensive staff training, and clear alignment with strategic and regulatory objectives. Bringing all stakeholders on board is essential to build trust, drive adoption, and ensure long-term impact.