Alternative lenders present in over half of European mid-market deals – report

Private debt funds are increasing their presence in European LBOs and refinancings, particularly in the UK and Germany.

Almost two-thirds of mid-market LBOs in major European markets saw private debt funds take part last quarter, according to figures from DC Advisory.

In the debt advisor’s latest quarterly market monitor, which tracks LBO and refinancing activity across the UK, France, Germany and Spain, debt funds continue to increase their role in financing European buyouts.

Out of a total of 56 multi-bank LBOs tracked by DC Advisory, 35 featured at least one non-bank lender.

In the UK, private debt funds took part in 11 deals, the same number as banks, while in Germany, alternative lenders provided finance for 10 mid-market LBOs, higher than the 8 deals which featured bank finance.

Debt funds were also strongly represented in refinancings, taking part in nine of the 13 total refinancings in the UK during Q3 2018 and three out of four refinancings in Germany.

More generally, DC Advisory said total leveraged loan volume was broadly flat at €84.9 billion in the first nine months of the year, largely due to a fall in M&A activity during the third quarter.

It said lenders continue to have a healthy appetite for deals, though upcoming challenges such as the end of quantitative easing, a possible turn in the credit cycle and the UK’s departure from the EU mean more are focused on lending to firms that can perform well through a downturn.

In the UK, refinancing activity was particularly strong as firms focus on achieving greater flexibility and covenants over headline rates in order to manage the uncertainty of Brexit.

Meanwhile, high levels of M&A activity in France have not seen a loosening of terms, with DC Advisory reporting an increase in “lender-friendly” documentation.