Today's Emerging Corporate Lenders
Though corporate revolving credit facilities (RCFs) don’t generate much fee revenue, they’re powerful tools for helping lenders build relationships with corporate borrowers. Banks that have committed to a firm’s RCF will generally be first in line for lucrative capital markets and M&A assignments. Conversely, a former lender that drops off an RCF may lose their seat at the borrower’s IB table for years to come. Therefore, analyzing today’s RCF relationships can provide predictive insight into tomorrow’s investment banking growth leaders.
Our research shows that once-volatile RCF lending relationships have finally begun stabilizing. In the last year, only 25% of borrowers changed lenders when refinancing a revolving credit line, down from 35% three years ago. With the financial system enjoying relative profitability and freedom from new regulations, it’s no surprise that lenders and borrowers are generally maintaining status quo.
Despite the generally stable environment, some lenders are bucking the trend, aggressively growing their RCF commitments to new lending clients. Which banks are in this new crop of emerging lenders? For the most part, they’re not the traditional bulge-bracket banks. Indeed, most of today’s emerging lenders have limited capital markets / advisory platforms. Though their loan commitments should allow them to compete successfully for IB mandates, they may lack the execution capabilities to do so. Some emerging lenders have already begun remedying this mismatch between relationships and product offerings. Banks like Mizuho and Citizens have been building out full-service IB capabilities organically and inorganically. We expect this trend to intensify, as banks seek to capture the fee opportunities their new lending relationships provide.