- The popularity of private debt funds is set to
continue, financing borrowers too small to tap the European
HY market or US loan market;
- Combined offerings from private debt funds and
banks are encouraging familiarity and comfort with new forms
- The terms being offered by alternative credit
providers are also showing the first signs of
Low borrowing costs and the rise of non-bank lenders are
tipped to boost M&A activity across Europe this year.
Traditional financiers, notably high street and investment
banks, have responded to the rise of alternative fund providers
by partnering with them to offer combined finance
Europe’s new breed of lenders, most notably
private debt funds, first appeared on the funding scene in late
2012. But they gained significant traction over the past 12
"Looking out over the debt landscape at the start of 2014
feels very different to the beginning of last year," said
Macfarlanes senior counsel Kirstie Hutchinson, speaking at last
In-house Counsel Summit. "Including because private debt
funds have made
some significant inroads into the market."
According to Hutchinson, there are three primary reasons why
private debt funds have become more prominent over the past 12
First, they have found a niche in the market for small to
"Private debt funds have been willing to lend in the space
where banks had retrenched and bigger ticket European
high-yield market and US-sourced bank lending was not
economically viable," she said.
Many started by offering facilities as low as $30 million.
Now they are offering up to $150 billion, and that looks set to
rise throughout the year.
Second, they are adaptable to the borrower’s
"Although they are typically more expensive than traditional
bank debt, they offer greater reach – in the sense of
spanning senior and subordinated leverage in a single facility
– and flexibility for sponsors," said Hutchinson.
By blending senior and mezzanine debt, in the form of a
unitranche facility, these lenders can offer bespoke terms
and adapt to a borrower’s changed
Finally, over the course of last year a number of recognised
positions have emerged in non-bank funding arrangements. While
it’s too early to describe such trends as
standardisation, it suggests a maturing market that is
increasingly acceptable to borrowers.
A related trend is
banks partnering with alternative financiers to fund mid-market
deals. A number of UK banks have recently announced their
intention to offer a combined solution alongside private debt
The private lender offers a term loan on attractive terms,
while the bank provides working capital facilities.
"I see that as encouraging a virtuous cycle of familiarity
and comfort with the product and providers, and leading to
increased efficiencies in execution," said Hutchinson.
More European In-house Council Summit
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