Persistent inflation and a 500bps rise in the Fed funds rate in just over a year: how are borrowers supposed to cope?

As an era of cheap borrowing draws to a close, companies which flourished in the era of low rates are feeling the stress. Analysts are projecting lower earnings, companies are cutting pandemic-era perks — and direct lenders are recording a decline in interest coverage.

Private credit spreads remain stubbornly above 600bps (Baxter’s biopharma spin-out and OneOncology are two recent examples) and all SOFR tenors are in excess of 4%. As such, many borrowers are contending with double-digit percentage coupons on unitranche loans.