Debt funds increased their market share of German leveraged buyouts to more than 70 percent in the first half of 2020, as banks pulled back in response to the coronavirus crisis.
Research from debt advisor GCA Altium said deal volumes in Germany collapsed in the second quarter of the year but debt funds were able to continue deploying capital despite uncertainty and limited market activity.
In the first half of 2020, debt funds had a 71 percent market share among German LBOs, made up of 62 percent from unitranche deals and 9 percent senior debt deals. This is up from 51 percent seen over the whole of 2019.
However, deal volumes have been hit badly by the crisis with many sell-side processes put on hold and only 11 transactions completed in the second quarter. GCA Altium said transaction volume in Q2 is down 45 percent compared to the 2017-19 average and 50 percent lower than in Q1 2020. Of the deals that did happen, most were refinancings or add-ons rather than new LBOs.
GCA Altium commented: “Lenders say they are open for business and will look at new deals, however their credit bar is generally very high. We already have experienced an increase in covenant resets and restricting mandates over recent weeks and expect this to continue through 2020, especially once Q2 results are reported.”
It also expects lenders will continue to be cautious about new deals through Q3, preferring to focus on established sponsor relationships and opportunistic add-ons for existing portfolio companies. Although pipelines are filling out for the second half of 2020, a significant uptick in market activity is not expected until summer holiday season ends in September.