>>> What to look at today - 31st of March 2023

Asian stocks rose with US equity futures Friday as a gauge of global shares headed for a second-straight quarterly gain, underscoring investor optimism in the face of banking turmoil and elevated interest rates.
Technology shares led global stocks this quarter, surging 19%, the most since mid 2020. The upbeat tone has been on display this week, with the S&P 500 climbing 0.6% Thursday in its third advance in four days. The Nasdaq 100 rose 0.9% overnight, pushing further into a bull market.  Benchmark indexes in Japan and Hong Kong led Friday’s rally and were also on course for quarterly gains. The Topix index surged by more than 1% after slightly paring its gains on news that Japan would impose new restrictions on chip exports. The dollar, which has weakened this month, was little changed Friday against most major peers. It rose about 0.2% versus the yen.  The gains Thursday in US stocks came as market watchers digested a round of Fed commentary suggesting more monetary tightening was necessary, even after the collapse of three US banks earlier this month. Boston Fed President Susan Collins said tightening was needed, while Richmond Fed President Thomas Barkin said the Fed can raise rates more if inflation risks persist. Positive signals out of China are helping the Bloomberg Commodity Index pare its quarterly loss, with oil recovering half of the ground it lost since early March.  An official gauge of manufacturing released Friday showed China managed to keep the momentum in its economic recovery March, falling only slightly to 51.9 from 52.6 in February, and beating the median of estimates from economists.  Most market watchers are still betting on China’s recovery underpinning a price rally later this year. That optimism is also apparent in share sale plans for Chinese equities. Alibaba Group Holding Ltd.’s logistics arm Cainiao Network Technology Co. — currently valued at more than $20 billion — has started preparations with banks for its Hong Kong initial public offering. Meanwhile, shares in rival JD.com soared in the US after two of its subsidiaries filed for IPOs in Hong Kong.  Traders were still on guard for any choppiness amid quarter-end rebalancing from pension funds and options hedging activity. And they continue to debate the extent to which policy makers may cut interest rates this year.  Still, several strategists have said markets are wrong to expect cuts by the Fed this this year as the labor market remains robust, though US unemployment claims ticked up for the first time in three weeks. High inflation — as measured by the so-called PCE Core Deflator due Friday — is expected to have persisted last month. oil traded near a two-week high. Gold was little changed on Friday, but headed for the biggest monthly gain since July 2020. US After Hours RUM +19.3% up huge on Q4 earnings; MCB +12.8% surging after noting that it is well capitalized; NKLA -5.7% tumbling on stock offering; BB -2.2% down on mild FebQ earnings.

Nikkei +0,91% Hang Seng +0,87% CSI +0,16% Shanghai +0,22% Shenzen +0,41%

Eur$ 1,0907 6,8603 CNY 6,8601 JPY 132,78 GBP 1,24 CHF 0?9136 RUB 77,2824 TRY 19,1750 WTI$ 74,34 Gold 1,981,23 BTC 28,169 ETH 1,803

S&P +0,17% NAsdaq +0,23% EuroStoxx -0,03% FTSE -0,03% Dax +0,08% SMI +0,05%

Macro :
- Goldman’s Rubner Sees Stocks Primed for Further Gains in April

Keep ane eye on :
- APO US : Apollo Said to Consider at Least $27 a Share Bid for Arconic (1)
- AUTO NO : Autostore Says UK Judgment on Patent Case Has No Business Impact
- IAG LN : Heathrow Security Staff’s Union Confirms Plans for Strike
- COLOB DC : Coloplast Says Study Shows Luja Is Better Than Competitor
- DLAR LN : De La Rue Faces New Campaign to Oust Chairman: Sky
- DBK GY : Ex-Credit Suisse CEO Blames Deutsche Bank Slump on Speculators
- DSM NA : DSM Says Acceptance Period for Firmenich Deal Further Extended
- 9638 HK : Ferretti May Be Active in HK After the End of IPO Lock-up Period
- GTT FP : GTT Gets Order From Hyundai Samho for LNG Carriers Tank Design
- HOLN SW : Citi Optimistic on Building Materials; CRH and Holcim Top Picks
- IIA AV : Immofinanz FY Net Income Misses Estimates
- IIA AV : Immofinanz Skips Dividend Second Year, Plans More Disposals
- INPST NA : InPost 4Q Adjusted Ebitda Beats Estimates
- JUN3 GY : Jungheinrich Sees 2023 Ebit EU350M to EU400M
- KNIN SW : Kuehne+Nagel France Gets 23 Electric Trucks to Lower Emissions
- KWS LN : Keywords Studios Rated New Hold at Deutsche Bank; PT 2,700 pence
- MUV2 GY : Munich Re Seeks Primary Insurance Acquisitions: Euro Am Sonntag
- NKLA US : Nikola Falls After Offering $100m of Shares via Citi
- NZYMB DC : Chr. Hansen, Novozymes Shareholders Approve Merger Plan
- OCDO LN : Ocado Wins Key UK Victory Over Robotic Warehouse Patents
- OX2 SS : OX2 to Buy Esco Pacific in Australia for SEK872m
- SGO FP : Saint-Gobain Divests Glass Processing Business in Switzerland
- SAN FP : Sanofi Seeks to Spin Off Consumer Business in India: ET
- SHELL LN : Shell Splits Up Global Renewables Unit in New CEO’s Shake-Up
- GLE FP : French Banks Challenge Tax Authorities After Cum-Cum Raids
- SMHN GY : Suess MicroTec FY Ebit Beats Estimates
- TRMDA DC : Torm Holder OCM Njord Holdings Terminates Secondary Offering
- TTE FP : Houston’s Opicoil Buys into Mexico Oil Block with Total, Qatar
- UMG NA : Universal Music Extends Grainge’s Contract as Chairman & CEO
- UPM FH : UPM Says $3.5 Billion Uruguay Pulp Mill Ready for Startup
- VORB US : Branson Injects $10.9M Into Virgin Orbit Amid Severances: FT
- ZEAL DC : Zealand Pharma Directed Issue, Private Placement of 6.58m Shares Prices at DKK228/Share

>>> Europe : Brokers Upgrades & Downgrades - 31st of March 2023

>>> Up
* Air France-KLM Raised to Buy at Deutsche Bank; PT 2.30 euros
* IAG Raised to Buy at Deutsche Bank; PT 200 pence
* Ceres Power Raised to Buy at HSBC; PT 440 pence
* Genus Raised to Buy at Stifel; PT 3,200 pence
* Lufthansa Raised to Buy at Deutsche Bank; PT 14.50 euros
* Pearson Raised to Outperform at Exane; PT 1,050 pence
* Spire Healthcare Raised to Buy at Jefferies; PT 250 pence
* Thule Raised to Buy at SEB Equities; PT 260 kronor
* Zimmer Biomet Raised to Hold at Jefferies; PT $130

>>> Down
* Andritz Cut to Accumulate at Erste Group; PT 75 euros
* Bankinter Cut to Underperform at KBW; PT 6.78 euros
* CaixaBank Cut to Market Perform at KBW; PT 4.97 euros
* DSV Cut to Neutral at JPMorgan; PT 1,270 kroner
* JD.com ADRs Cut to Hold at Loop Capital; PT $49
* Jonix Cut to Hold at Bestinver; PT 80 euro cents
* Pets at Home Cut to Add at Peel Hunt; PT 400 pence
* Terna Cut to Neutral at Grupo Santander; PT 8.20 euros

>>> Initiation
* Alfa Laval Reinstated Buy at HSBC; PT 430 kronor
* Ariston Rated New Buy at HSBC; PT 14 euros
* Belimo Rated New Hold at HSBC; PT 476 Swiss francs
* DiscoverIE Rated New Hold at Liberum; PT 105 pence
* Equasens Rated New Hold at Stifel; PT 85 euros
* Nexus Rated New Buy at Stifel; PT 72 euros
* Nibe Rated New Buy at HSBC; PT 134 kronor
* Sectra Rated New Sell at Stifel; PT 125 kronor

>>> Call
* CITI STRATEGISTS RAISE GLOBAL TECH STOCKS TO OVERWEIGHT
* CITI STRATEGISTS CUT GLOBAL FINANCIALS STOCKS TO NEUTRAL
* Citi Optimistic on Building Materials; CRH and Holcim Top Picks
* Goldman’s Rubner Sees Stocks Primed for Further Gains in April
* Mining-Equipment Growth Potential Underappreciated, RBC Says
* Nemetschek Sits at Attractive Entry Point, Berenberg Upgrades
* Nibe, Ariston, Alfa Laval Among HSBC’s Preferred Heat-Pump Plays

WSJ : JD.com’s Property and Industrial Units Seek About $1 Billion Each in Hong

JD.com’s Property and Industrial Units Seek About $1 Billion Each in Hong Kong IPOs
Chinese e-commerce giant says it plans to spin off the two businesses through separate listings

JD.com Inc.’s JD 7.82% property and industrials units are targeting to raise about $1 billion each in Hong Kong initial public offerings, people familiar with the matter said, adding to the supply of potentially sizable deals that could hit the market this year.

The Chinese e-commerce giant said on Thursday that it is planning to spin off Jingdong Property Inc. and Jingdong Industrials Inc. by listing both companies in the city.

JD.com plans to hold on to about 50% of each company after they are public. Its Nasdaq-listed American depositary receipts jumped 7.8% in Thursday trading to $44.40, while its Hong Kong-listed shares gained 7% in early Friday trading.

JD.com said it hasn’t finalized the size and structure of the offerings. Both companies have filed preliminary listing documents with Hong Kong’s exchange, which said the spinoffs can proceed.

The two units’ plans to offer shares follow those of rival e-commerce giant Alibaba Group Holding Ltd. to split itself into six independently run companies that could seek separate IPOs.

JD.com has previously spun off other businesses through public listings. They include JD Health International Inc., a telemedicine provider and online pharmacy business that raised $3.5 billion in a Hong Kong initial public offering in late 2020. The other is JD Logistics, which raised more than $3.5 billion when it went public in the city in mid-2021.

JD Property, which started operations in 2007, develops and manages assets such as logistics and business parks, mostly in China. It posted a profit of $323.1 million on revenue of $337.4 million in 2022.

JD Industrials is a supply-chain technology and service provider. The unit, which JD.com started in 2017, generated a loss of $184.7 million on revenue of $2.06 billion last year.

The once-hot global IPO market hit a snag last year as the Russia-Ukraine war, rising interest rates and higher inflation led to market volatility. For Chinese companies, blockbuster listings have been absent since Beijing intensified its crackdown on homegrown technology companies, with the sudden cancellation of financial-technology giant Ant Group Co.’s IPO in 2020 and ride-hailing company Didi Global Inc.’s ill-fated debut in 2021.

Primary and secondary listings in Hong Kong raised $820 million through the first three months of the year, down 57% from the same quarter a year earlier, according to Dealogic. The market is now holding out hope for Hong Kong IPOs to pick up pace in the second half of the year, deal makers say.

Two new sets of IPO rules came into effect on Friday—which could pave the way for more listings in the Asian financial hub.

Companies in some technology fields that haven’t yet generated revenue will be able to explore listings in Hong Kong, as the city’s stock exchange finalized a new set of rules known as Chapter 18C following a consultation period. Separately, China’s securities regulator last month released long-awaited guidelines that require all mainland Chinese companies that are planning international share sales to inform the regulator beforehand.

FT : Dealmaking at 10-year low in first quarter as bank crisis hits confidence

Dealmaking at 10-year low in first quarter as bank crisis hits confidence
Value of mergers and acquisitions drops 45% year on year to $550.5bn

Global dealmaking suffered its weakest start to the year in a decade, as a darkening economic outlook depressed activity and a transatlantic banking crisis put the brakes on risk taking.

The first quarter of 2023 was the slowest start to the year since 2013 as rising interest rates put an end to the flurry of deals that followed the onset of the Covid-19 pandemic and the cheap borrowing costs it ushered in.

The value of mergers and acquisitions dropped 45 per cent year-on-year to $550.5bn between January and March, the largest decline in the first quarter since 2001, according to data from Refinitiv.

”The environment for M&A transactions continues to be very challenging,” said Frank Aquila, Sullivan & Cromwell senior M&A partner. “Increasing concerns about the broader economy and the prospect for a recession later this year in the United States has certainly made decision makers hesitant to move forward with transactions in some sectors.”

An already slow quarter turned into one of historic tumult in March with the collapse of Silicon Valley Bank in the US and the rescue acquisition of Credit Suisse by its local rival UBS.

Advisers fear those episodes will further reduce the potential for a rebound in activity, given increased volatility in markets and the risk of a recession in the US later this year.

“The other question on everyone’s mind is if this banking crisis has been avoided or just deferred,” said Naveen Nataraj, co-head of Evercore’s US Advisory business.

Europe was the chief laggard this past quarter, with regional deal activity down 63 per cent to $81.6bn, while the US saw a 47 per cent drop to $271.7bn and the Asia-Pacific region only declined by 24 per cent to $134.6bn.


Sectors such as healthcare, technology and industrials were bright spots. Healthcare deals accounted for nearly a fifth of deals, reaching a two-year high in the period, boosted by the top transaction of the quarter — Pfizer’s $43bn acquisition of oncology-focused biotech Seagen.

“Big pharma wants move-the-needle assets that are as de-risked as possible,” said Philippe Gallone, a Moelis & Co managing director specialising in healthcare, who warned that there are only a limited number of targets available

In the shifting market, smaller financial firms have been able to grow market share. While JPMorgan and Goldman Sachs led the rankings for M&A advisers, the smaller Centerview Partners took the third spot in the best showing for a boutique operation in decades.

While it has become slightly easier to borrow funding in order to finance deals, buyout firms agreed their lowest value of transactions this quarter since 2020, at $136.1bn.

A chief obstacle to transactions remains falling valuations, with companies still hesitant to negotiate deals that would crystallise the reality of lower prices. However, pressure on private equity firms to negotiate deals could lead to a flurry of activity once the market reopens, according to Simona Maellare, global co-head of the alternative capital group at UBS.

”If you want to sell, you need to be ready because it will be a traffic jam” when the market reopens, she said.

Rising interest rates have also hit the capacity for buyers to finance larger acquisitions. Mid-size transactions have been more resilient, according to bankers.


Still, some corporations and investment firms sought to take advantage of falling prices to make strategic transactions.

For example, CVS agreed to acquire primary care centre operator Oak Street Health for $10.6bn billion, a move that will accelerate its push into other parts of the healthcare chain.


“We’re starting to see companies poke their heads up and see if any opportunities may exist,” said Daniel Mendelow, who is also co-head of Evercore’s US Advisory business.

Private credit groups have continued to play a prominent role in helping finance transactions. Firms including Apollo, Ares and Blackstone are poised to write the largest direct loan on record at $5.5bn to help fund Carlyle’s acquisition of a 50 per cent stake in healthcare analytics company Cotiviti, the FT reported.

Meanwhile, Silver Lake assembled one of the heftiest equity cheques for a private equity buyout in its $12.5bn acquisition of Qualtrics alongside Canada’s largest pension fund.

“The last three quarters we have seen more creativity out of private equity,” said Kevin Brunner, co-head of global M&A at Bank of America. “We are also seeing several transactions, primarily in growth sectors, where the large majority of the purchase price is being funded through equity”

>>> US After Hours Summary: RUM +19.3% up huge on Q4 earnings; MCB +12.8% surging after noting that it is well capitalized; NKLA -5.7% tumbling on stock offering; BB -2.2% down on mild FebQ earnings


After Hours Summary: RUM +19.3% up huge on Q4 earnings; MCB +12.8% surging after noting that it is well capitalized; NKLA -5.7% tumbling on stock offering; BB -2.2% down on mild FebQ earnings

After Hours Gainers:

Companies trading higher in after hours in reaction to earnings/guidance: RUM +19.3%, YMAB +4.3% (also files $150 mln mixed shelf), IONQ +3.7%, BRZE +2.3% (also acquiring North Star)

Companies trading higher in after hours in reaction to news: MCB +12.8% (remains well capitalized), DHHC +10.1% (closes business combination), STAR +2.2% (announces consolidation ratio), AMAM +0.7% (files $300 mln mixed shelf), EWTX +0.5% (journal of clinical investigation publication), FRC +0.4% (MA regulator probing insiders' stock sales, according to Reuters), RTX +0.4% (awarded contract), MRO +0.3% (signs HoA with Republic of Equatorial Guinea and Noble Energy), RIO +0.3% (joint venture with First Quantum Minerals)

After Hours Losers:

Companies trading lower in after hours in reaction to earnings/guidance: BB -2.2%, NUS -1.9% (CFO departing; reaffirms guidance), IGMS -1%

Companies trading lower in after hours in reaction to news: NKLA -5.7% ($100 mln stock offering), THCH -2.8% (acquires PLKC International Limited), VLO -0.3% (seeking US approval to import Venezuelan oil, according to Reuters), ENLC -0.1% (prices $300 mln additional senior notes)

>>> US Close Dow +0,43% S&P +0,57% Nasdaq +0,73%


Closing Stock Market Summary

Today's trade started on an upbeat note following yesterday's pleasing price action. Initially, the main indices all logged decent gains paced by the Nasdaq thanks to relative strength from chipmakers and mega cap stocks. 

Early momentum dissipated, though, and the main indices slowly declined, hitting their session lows around midday. The downturn was attributed to renewed selling pressure in the banking sector, indicating that concerns about additional fallout remain in play for investors. The SPDR Regional Bank ETF (KRE) fell 2.0% and the SPDR Bank ETF (KBE) lost 1.5% today. 

Unsurprisingly, the S&P 500 financial sector (-0.3%) was the worst performer today. It was the only sector to close with a loss, partially weighed down by the recently embattled First Republic Bank (FRC 13.69, -0.57, -4.0%). Charles Schwab (SCHW 52.47, -2.74, -5.0%) was another top laggard for the sector after being downgraded to Equal Weight from Overweight at Morgan Stanley.

Following the midday dip, the main indices bounced and closed near their best levels of the day. The S&P 500 was able to extend its position above its 50-day moving average (4,017). Fortunately, buying interest in chipmakers and mega cap stocks remained fairly robust. The PHLX Semiconductor Index rose 1.6% and the Vanguard Mega Cap Growth ETF (MGK) rose 0.8%. 

The ten remaining S&P 500 sector, aside from financials, logged gains ranging from 0.2% (industrials) to 1.2% (real estate). The influential information technology (+1.1%) and consumer discretionary (+0.9%) sectors were among the top performers. 

The 2-yr note yield rose four basis points to 4.11% and the 10-yr note yield fell two basis points to 3.55%.

The U.S. Dollar Index fell 0.5% to 102.14. On a currency related note, China and Brazil agreed to trade in their own currencies instead of the U.S. dollar.

As a reminder, investors receive the market-moving February Personal Income and Spending report tomorrow at 8:30 a.m. ET, which will include the PCE Price Index (the Fed's preferred inflation gauge).

  • Nasdaq Composite: +14.8% YTD
  • S&P 500: +5.5% YTD
  • S&P Midcap 400: +1.6% YTD
  • Russell 2000: +0.4% YTD
  • Dow Jones Industrial Average: -0.9% YTD

Reviewing today's economic data:

  • Initial jobless claims for the week ending March 25 increased by 7,000 to 198,000 (consensus 196,000) while continuing jobless claims for the week ending March 18 increased by 4,000 to 1.689 million from last week's revised level of 1.685 million (from 1.694 million).
    • The key takeaway from the report is that claims remain at a stable level near the 200,000 mark, suggesting little recent stress in the labor market.
  • The third estimate for fourth quarter GDP showed a slight downward revision to 2.6% (consensus 2.7%) from 2.7% reported in the second estimate. The lowered estimate was owed to downward revisions to exports and consumer spending. The GDP Price Deflator was left unrevised at 3.9% (consensus 3.9%). The personal consumption expenditures index was left unrevised at 3.7% while the core-PCE Price Index was revised up to 4.4% from 4.3% in the second estimate.
    • The key takeaway from the report is that it continues pointing to above-potential growth and inflation that remains above target, which the Fed could use as an argument for additional rate hikes.
  • The weekly EIA Natural Gas Inventories showed a draw of 47 bcf versus a draw of 72 bcf last week.

Looking ahead to Friday, market participants will receive the following economic data:

  • 8:30 ET: February Personal Income (consensus 0.3%; prior 0.6%), Personal Spending (consensus 0.3%; prior 1.8%), PCE Prices (consensus 0.4%; prior 0.6%), and Core PCE Prices (consensus 0.4%; prior 0.6%)
  • 9:45 ET: March Chicago PMI (consensus 42.5; prior 43.6)
  • 10:00 ET: Final March University of Michigan Consumer Sentiment (consensus 63.4; prior 63.4)

The Information : Private Equity Firms’ Secret Weapon for Big Software Buyouts

Private Equity Firms’ Secret Weapon for Big Software Buyouts

When Thoma Bravo was drawing up the financing of its $8 billion acquisition of Coupa Software last year, the private equity giant didn’t turn to a bank, and it didn’t get a traditional loan. Instead, it tapped a group of non-bank lenders including Sixth Street for a relatively obscure type of financing—one that has been making its way into more and more multibillion dollar deals.

That deal, the 10th-biggest buyout of last year, according to Dealogic, was financed not based on profits, but on annual recurring revenue. Recurring revenue loans have been used for smaller software buyouts for years, but are being used more and more to fund some of the biggest technology takeovers, several private equity dealmakers told The Information.

Private equity firms are increasingly tapping non-bank lenders like investment firms for loans, and ARR loans are more of an option with those firms since they’re less regulated and risk averse than traditional banks.

The option of using ARR loans to fund bigger technology buyouts is key for private equity firms, which have been mostly unable to get loans from traditional banks for months. The banking industry has all but stopped funding private equity buyouts because interest rates have risen and the banks have struggled to offload the existing debt on their balance sheets.

At least 10 notable private equity deals were financed with ARR loans last year, compared to six in 2021, none in 2020 and two in 2019, according to data from LCD, a division of Pitchbook that tracks notable-–but not all—of these deals because the data is elusive.

Among the deals done with ARR loans last year were Thoma Bravo’s $10.4 billion acquisition of Anaplan, Hellman & Friedman and Permira’s $10.2 billion acquisition of Zendesk, and Vista Equity’s $8.4 billion acquisition of Avalara.

“There’s more money pouring into software businesses from private equity and venture capital,” said Justin May, a managing director at investment bank Lincoln International who advises private equity firms about deal financing. He said investors are also looking for innovative ways to finance the deals as appetite for them grows.

In the back half of last year, the amount of bank-led leveraged buyout loans fell 80% year-over-year to $13.2 billion in the U.S., according to Pitchbook. Non-bank direct lenders—including investment firms and the credit arms of private equity firms—have picked up much of that slack.

To get a sense of how easily a company should be able to pay off its debt, lenders look at its leverage ratio, which is typically calculated by dividing a company’s net debt by its earnings before interest depreciation and amortization. If this debt-to-EBITDA ratio falls outside of a generally accepted range, warning bells go off.

With ARR loans, the leverage ratio is calculated by dividing net debt by annual recurring revenue rather than by EBITDA. Doing so enables lenders to fund buyouts of unprofitable companies, but because of their higher risk profiles, recurring revenue loans tend to have tighter documentation protections and covenants. They’re also more expensive. ARR loans typically carry slightly higher interest rates than traditional loans—for example, if a traditional loan had an interest rate of 7% over the secured overnight financing rate, an ARR loan might have a 7.5% rate, May said.

Many of the ARR loans also have a provision that requires the loan to flip to the more traditional debt-to-EBITDA ratio after a set number of years. If companies are unable to turn a profit by the agreed upon date, they might default on the loan.

This type of provision has become more common within the past six months to a year, according to Allison Liff, Head of U.S. Leveraged Finance at the law firm Freshfields Bruckhaus Deringer.

PE’s Eager Appetite for Software

The private capital industry is sitting on a record amount of dry powder, and both private equity firms and direct lenders have been directing much of it toward software deals. About 30% of private equity buyouts last year were within the technology sector, and 88% of those tech buyouts were in software, according to Bain.

“The predictable nature of [software] revenue and therefore the cash flow of those businesses make software a very exciting and stable industry to underwrite, particularly in uncertain economic times,” said Vista Credit Partners President David Flannery.

Several private equity dealmakers said depressed stock prices for unprofitable public companies have created an opportunity to scoop up growth-oriented firms with profitability potential at what they perceive as a discount.

“The valuation correction has been much more severe for these unprofitable companies versus profitable ones, which has attracted some more private equity buyers who have the expertise to help transition these companies to profitable growth,” said Thoma Bravo’s head of credit Oliver Thym.

Of course, not all recurring revenue loans are going toward multi-billion dollar buyouts of publicly traded companies. As fundraising becomes more difficult, founders of privately-owned software companies in Silicon Valley are increasingly interested in recurring revenue loans, too, as a way to put cash on their balance sheets, Vista’s Flannery said.

But in an environment of higher interest rates, earlier stage companies that aren’t able to turn a profit are more likely to default on recurring revenue loans starting later this year, said Bill Cox, Global Head of Corporate, Financial and Government Ratings at credit rating agency KBRA. Cox contrasted these companies with larger companies that might take out a recurring revenue loan to reinvest their earnings into sales and marketing initiatives. That second group of companies could more easily “turn off the marketing and sales spigot” and refocus that money elsewhere, Cox said.

“I don't think this is going to be a situation where folks say, “We shouldn't have done that,’” Cox said. “It’s more likely to be a case where economic conditions don't support as many of these companies being able to be invested in this way—at least for the time being.”