Loan Note: Deal timelines lengthening; Europe sees an increase in jumbo financings

A study finds the road to deal completions becoming longer. Plus: the sudden growth of jumbo-sized financings; and where Varde Partners sees opportunity in the market. Here’s today’s brief for our valued subscribers only.

They said it

“The default rate for large middle market issuers within Fitch’s leveraged loan universe reached 5.5 percent for 2023, the highest rate within Fitch’s data going back to 2007”

Taken from Fitch RatingsUS Middle Market Chart Book 4Q23

First look

Long road ahead: Deals are taking longer to complete

Deals became a slow grind in 2023

Timelines to complete private capital deals lengthened by 56 percent in the fourth quarter of last year, according to research from Termgrid, a private capital markets-focused software platform.

The finding supports a survey conducted by the same firm in January in which 62 percent of market participants said they believed deal timelines were extending, with 59 percent attributing this to mismatched price expectations.

Termgrid found the weighted average length of deals climbing from 3.5 months in October 2023 to 5 months in December 2023. Over the same period, the proportion of completed deals fell from 48.7 percent to 47.9 percent with other deals labelled as either “dropped” or “lost”.

However, the survey found renewed optimism for the deals market in 2024 due to new budgets and the pressure on GPs to both deploy capital and return it to LPs.

“While we understand that there may still be a mismatch of price expectations in M&A, the new year has brought a fresh wave of activity and optimism to the private credit market,” the survey noted.

Jumbos rising in Europe

Last year was a record for jumbo-sized private credit financings in Europe, according to research from KBRA DLD (registration required), a division of rating agency KBRA.

According to the study, more “jumbo deals” – defined as totalling $1 billion or more – were concluded in the region in 2023 than in the previous three years combined. Although the UK dominated larger deals, six such mega-loans were recorded for continental European businesses.

Optimism in the M&A market was also to be found in this study, with the level of activity increasing in the fourth quarter of last year after three slow prior quarters. Buyouts accounted for 77 percent of the total volume of M&A deals and 58 percent of the total number.

Buyout leverage moved up in the first three quarters of last year, but then fell in the fourth quarter to finish the year at 4.3x.

“Direct lenders are expected to continue to take share from liquid credit in 2024 by utilising their flexibility to offer more bespoke terms and structures such as portability, and their willingness to finance dividend recaps as private equity firms seek ways to return equity to investors,” KBRA said.

Where the opportunity lies

In its 2024 Credit Market Outlook, fund manager Varde Partners draws attention to numerous areas of opportunity this year, including:

Commercial real estate: “The commercial real estate sector remains the epicentre of this cycle with elements of macro stress influenced by rates, large capital gaps and pockets of fundamental stress.”

Housing: “We… maintain a very positive view on student housing in urban centres. We are particularly focused on New York City where we continue to see potential for conversion of urban hotels to student housing facilities.”

Asset-based credit: “We saw several transactions in 2023 that were bilaterally structured, private securitisations of performing collateral for regular structured product issuers during a period where ABS markets were effectively shut to issuance.”

Asia-Pacific private credit: “While credit supply in the region is still cautious, the need for capital is strong and growing and we are seeing significant demand for access to credit, especially in sizes that are globally relevant.”

Essentials

New chairman for Marlborough

Marlborough Partners, the London-based capital structure advisory firm, has appointed Hamish Buckland as its new chairman.

Buckland has extensive experience across public and private credit markets in Europe and the US. He was previously chairman of CVC Credit from 2017 to 2021, during which time the business experienced significant growth, including more than 50 percent expansion in assets under management. Prior to joining CVC, he was a senior adviser to Triton Partners for six years.

He spent 25 years at JPMorgan, where he was vice-chairman and ran the bank’s European leveraged finance business from 2001-08. He was also adviser and board director at HM Treasury’s Asset Protection Agency.

A statement said Buckland will support the firm’s senior leadership in continuing to expand its presence across Europe, at a time when the increasing complexity of sources and structures in credit markets is fuelling increased demand for capital structure advisory services.

New MD for wealth specialist Troviq

Troviq Private Markets, a private markets specialist and partner to wealth managers and family offices, has hired Ed Cotton as managing director to focus on business development across Europe.

He joins from private equity investing platform Moonfare, where he served as head of UK and Ireland, setting up the UK subsidiary and building out the firm’s B2B offering for private banks, wealth managers and family offices.

Prior to Moonfare, Cotton was head of business development and partnerships at Delio, a private markets technology platform. He began his career in private banking with Barclays and Edmond de Rothschild’s Private Merchant Bank, where he was responsible for the distribution of the group’s private equity funds into the UK market.

Cotton is the latest in a series of new hires to the firm, which had six new joiners in 2023, including Olivier Hermanus and Jan Willem Welman.

Troviq completed 22 fund commitments and strategy launches last year, including the US Mid-Market Private Equity Program and the TPM Privium Private Debt Portfolio fund. The firm has offices in the UK and Netherlands.

Credit expert joins Proskauer in London

Law firm Proskauer has hired James Oussedik as a partner in its private investment funds group in London. With more than 20 years’ experience advising a range of sponsors and investors, he will co-lead the firm’s global credit fund and sovereign wealth fund initiatives and expand the firm’s capabilities in Europe.

Oussedik advises on all aspects of fund formation and related matters across asset classes, with a particular focus on closed- and open-end credit-related strategies, including credit opportunities, corporate funding solutions, litigation funding, special opportunities and special situations/distressed.

He has experience in the establishment and maintenance of investment funds, funds of one and managed accounts, co-investments and related legal and regulatory issues.

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LP Watch

Institution: Ventura County Employees’ Retirement Association
Headquarters: Ventura, US
AUM: $7.4 billion
Allocation to private debt: 6.9%

Ventura County Employees’ Retirement Association approved two private debt commitments worth a total of $55 million in Q4 2023, according to its 22 January business meeting materials.

The public pension fund committed $25 million to PIMCO Aviation Income Partners II, as well as $30 million to Pantheon Credit Opportunities III. It previously committed $40 million to Pantheon Credit Opportunities II in 2022.

Platinum subscribers may click here for the investor’s full profile, including key contacts, allocation strategy and fund investments.


Today’s letter was prepared by Andy Thomson, with John BakieChristopher Faille and Robin Blumenthal contributing