2025 has proven to be a challenging year for debt markets. Geopolitical tensions, global trade disputes, and persistent inflation have reshaped borrowing strategies. For debt capital companies, understanding these macro trends is key to advising mid-market businesses.
Key Market Challenges
- Geopolitical Risk: Trade wars and sanctions affect cross-border financing and hedging costs.
- Inflation Volatility: Higher borrowing costs erode the value of long-term loans if not managed properly.
- Sector-Specific Pressures: Manufacturing, energy, and technology face differing credit availability due to risk perception.
How Companies Can Adapt
- Diversified Lender Base: Use a mix of banks, BDC (Canada), and private lenders to avoid overreliance on one source.
- Flexible Debt Structures: Covenant-light loans or mezzanine facilities provide breathing room in volatile periods.
- Stress Testing Scenarios: Model cash flow under extreme macroeconomic shocks to ensure debt sustainability.
Lessons Learned
- Adaptability is critical: Companies that preemptively restructure debt or refinance have a strategic advantage.
- Private credit is growing: Non-bank lenders are increasingly filling the gap for mid-sized businesses, offering speed and flexibility.
- Data-driven decision-making: Tracking global economic indicators—interest rates, inflation, and trade metrics—is vital for CFOs.
