After an extremely busy 2021 where the financial markets and the lending sector recovered rapidly from the COVID-hibernation, 2022 has been a turbulent year that did not live up to expectations in terms of activity. With geopolitical unrest, high inflation and rising interest rates as the backdrop, financial markets were volatile and funding costs increased substantially. Investors demanded increased returns for new investments and growth companies experienced deteriorating valuations as investors shifted their focus to profitable and mature companies. Companies not generating positive cash flows experienced difficulties trying to obtain debt financing in 2022.
Even though the bank lending market was negatively affected by the banks’ efforts to reduce their balances and exposure towards certain sectors such as real estate, our financing team still assisted lenders and borrowers on a considerable number of new financings and refinancings. As turbulence increased throughout the year and some companies were unable to satisfy covenants or fund capital requirements, we experienced a substantial increase in waiver requests and discussions between borrowers and lenders.
The Norwegian high yield bond market was considerably less active in 2022 than in 2021. As funding costs increased materially throughout the year, the number of new deals in the market was significantly reduced. This was especially true for new issuers with no track record in the market. Investors also prepared themselves for outflow of funds, which resulted in payments of coupon and principal not being reinvested in new debt securities.
In terms of regulatory assistance, the focus on LIBOR transition continued as an increasing number of lenders discontinue the use of LIBOR as a reference rate. Furthermore, the implementation of the new Financial Contracts Act has been a focus area for many lenders as the act enters into force on 1 January 2023.
In other news, ESG, taxonomy and sustainable financing continue to be hot topics across most sectors. These topics are still evolving at a rapid pace as companies, lenders and investors are trying to come to terms with the requirements and application of new regulation. If you want to know more about the EU taxonomy, please check our taxonomy application:
https://svw.no/en/simonsen-vogt-wiig-offers-taxonomy-assesments
As 2022 comes to an end and concludes a memorable year with somewhat muted activity, it is difficult to predict what 2023 has in store. Market uncertainty seems likely to continue for a while as inflation has not come under control and interest rates continue to increase. However, the financial markets are adaptable, and investors never stop looking for profitable investments. Sectors such as shipping, offshore and renewables have experienced a strong 2022 and show no signs of slowing down. How 2023 unfolds for the financing sector remains to be seen, but we remain optimistic as borrowers, lenders and investors continue to adapt to increased funding costs.
We would like to thank all our clients and counterparties for excellent collaboration throughout 2022 and look forward to reconnecting in 2023.