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FIS Horizons

2018 is likely to be another eventful year for the FIS sector. Across the world, we're facing change of every order; the question is how you deal with it?

Alternative finance: A fresh approach

By Ros O'Malley and Paul Mullen

Following the financial crisis, the global financial landscape has shifted with commercial banks now subject to increased regulation and higher capital adequacy requirements. This in turn has led to the rise of alternative lenders who are not shackled by the same constraints. Private debt and equity funds, as well as pension funds and other asset managers, have a huge global pool of capital that needs to be invested and are actively looking for new and innovative ways of deploying that capital with the quantum of their debt offerings to borrowers constantly increasing.

These institutions are contributing to the continued development and evolution of financing structures, such as unitranche facilities and first out/last out loans. Alternative lenders can provide nonamortising structures, more flexible, bespoke terms and longer tenors, which are attractive to borrowers but these funds are likely also to have higher return thresholds than the banks. In addition, alternative lenders may not be able to provide a borrower with all the funding required – for example, they generally do not offer working capital facilities, transactional facilities or swaps. Over 2018, we expect to see financing structures becoming more refined, with commercial banks and alternative lenders continuing to find ways to collaborate to provide tailored financing solutions to borrowers such as the use of asset backed loans to provide working capital liquidity alongside a term loan. We also believe that the alternative lenders are likely to look to new markets for investment opportunities as they continue their expansion into the Asia Pacific region and explore geographies such as Eastern Europe.

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