Funds accounted for a 48 percent share of German mid-cap buyout debt financing in the first half of this year according to the latest MidCap Monitor survey from investment bank GCA Altium.
This represents a notable increase from the first half of last year, when funds were involved in 30 percent of deals. Over the same period, the proportion of bank-only senior debt deals has plunged from 70 percent of the total to 52 percent.
The debt fund surge came as the market saw an increase in German mid-cap LBOs from 41 in the first half of last year to 46 in the opening six months of 2018. The debt fund influence is hinted at by the number of unitranche financings, which climbed over that period from 12 to 22.
Debt funds have been able to lower the cost of unitranche through the use of first out/second out structures. Covenant-lite unitranches have also grown in popularity for the strongest credits at premium pricing.
Funds have not made any notable advance into the senior debt space given the low pricing in that part of the market. Senior debt deals climbed from 10 in Q1 2018 to 14 in Q2, but this figure was still well below the 22 recorded in the fourth quarter of last year.
The survey authors predict that the number of deals in the coming quarters will increase above current levels. But given the high level of competition between the banks and debt funds in Germany, a significant uplift in margins is not expected.