Alternative credit use to rise in Europe – survey

The Allen & Overy study sampled current and future appetite for alternative financing in Europe. More than 50 percent of mid-sized corporates said they intend to increase their use of non-bank lending options.

Alternative credit, while fragmented, now plays a key role in financing European corporate borrowers, according to a survey by law firm Allen & Overy. 

Almost half (46 percent) of large corporates questioned said they expected to increase their use of non-bank credit, while 51 percent of medium-sized firms said the same.

Allen & Overy commissioned pollster YouGov to interview corporates and investors about how they finance themselves and where they deploy capital. The firm spoke to 368 different firms and concluded that both supply of, and demand for, alternative finance is set to grow. 

This comes despite the use of alternative finance falling from 40 percent reported in the same survey last year to 30 percent in 2015, the result of the European Central Bank’s quantitative easing programme, according to Allen & Overy.

Capital markets were the main beneficiary rising 6 percent year-on-year to 22 percent, while banks increased their share from 44 percent in 2014 to 48 percent in 2015. Larger corporates, better positioned to tap capital markets, showed the steepest decline in their use of alternatives, from 40 percent a year ago, down to 26 percent this year.

However, the report also emphasised the importance of the role of banks. “Banks continue to have a vital role to play, a real facilitation role between issuers who aren't as informed about this market as they would like to be and investors who need support with that interface [with corporates],” Tim Conduit, a partner in Allen & Overy’s international capital markets group told PDI

That bank role related to helping intermediate the alternative market and, in particular, introducing borrowers to the pan-European private placement market. 

The report showed that private debt funds and asset managers were the biggest alternative lenders, although with the private placement market included in the results, insurance companies were not far behind. Hedge funds also scored highly. 

There was a clear domestic bias among lenders and borrowers who use the private debt market, meaning borrowers are missing out on other potential sources of finance. And while awareness of the new pan-European private placement market guide and newly-introduced standardised documentation was high at 76 percent, only 25 percent of borrowers had actually used the new frameworks. 

YouGov polled respondents in six European markets: France, Germany, Italy, Spain, the UK and Benelux. The corporate respondents were split evenly between medium and large companies while the investors included private debt funds, asset managers, hedge funds, insurance companies, family offices, pension funds, peer-to-peer and crowdfunding platforms and others.