Loan Note: Distressed credit secondary price rises; Europe’s lenders in deal record

Secondary pricing up for distressed credit but down for mezzanine. Plus, a record level of activity for Europe's alternative lenders. Here's today's brief for our valued subscribers only.

They said it

“For many early-stage businesses… the significant rise in inflation may trigger fears of a subsequent rise in interest rates, directly impacting how much they are able to borrow at a crucial time, when many expected the economy to fully reopen again”

Ian Warwick, managing partner at growth capital specialist Deepbridge Capital, in response to news that the UK consumer prices index had risen to 2.1%

First look

Secondary distress rises in popularity
With concerns that primary opportunities in distressed credit may not be as numerous as they were anticipated to be following the pandemic, investors appear to be taking their chances on the secondary market instead. According to the latest Price Report (see here for archive) from Canadian investment bank Setter Capital, distressed credit prices rose by 10.35 percent between April 2020 and April 2021.

This came amid a continuing rally in the secondary prices of many alternative strategies – led by growth and energy funds, which were up 26.1 percent and 19.5 percent respectively. However, mezzanine was one of only two strategies to see a price decrease over the period (-1.93 percent) along with timber (-2.41 percent).

Record-breaking quarter for Europe’s lenders
The latest Alternative Lender Deal Tracker from Deloitte shows Europe’s alternative lenders ramping up their activities. Highlights from the report, which tracks 64 lenders, include the following:

A total of 160 alternative lending deals closed in Europe in Q1, the highest number ever recorded in a single quarter (see data snapshot chart below).

During the last six months, 319 deals have closed – almost two and half times as many as in the preceding six months.

The UK remained the most active lending market, accounting for 42 percent of all deals closed in Q1. But activity was also up in France and Germany, with 32 percent and 45 percent increases respectively over the previous quarter.

The three most popular sectors in the first quarter were TMT, healthcare and business services, which accounted for 22 percent, 20 percent and 18 percent respectively of deal activity.

Data snapshot

Q1 record. Deal volumes in Europe hit a record in the first quarter of 2021 as private debt rebounded strongly from the effects of the pandemic. Deloitte’s Alternative Lender Deal Tracker shows 160 mid-market deals were closed in Europe in Q1, the highest number ever recorded – and even more remarkable for occurring in the normally quiet first quarter of the year.


Bridgepoint launches in Netherlands
Jeroen Udo is joining Bridgepoint Credit – the credit arm of PEI Media owner Bridgepoint – to open the company’s Amsterdam operation. This will be Bridgepoint Credit’s sixth investment office. Udo previously spent 14 years at ABN AMRO in Amsterdam where he worked for the acquisition and leveraged finance team. He will lead credit origination in the Benelux countries.

KKR aviation business takes off
KKR has launched AV AirFinance, a global commercial aviation loan servicer established by a team of experienced industry professionals together with the US-based fund manager.

Coinciding with the launch, KKR and AV AirFinance have agreed to purchase a nearly $800 million portfolio of aviation loans from CIT Group, including more than 50 loans for approximately 60 commercial aircraft. The loans in the portfolio have an average yield in the mid-single digits and an average term remaining of approximately four years. Read more here.

German hire for A&M
Professional services firm Alvarez & Marsal has hired Jens Nawrath as a managing director in its European debt advisory team. He will join the Frankfurt office, bringing more than 30 years’ experience advising in debt advisory, turnaround and financial restructuring cases.

Prior to joining to A&M, Nawrath spent two years as a partner with Deloitte’s financial advisory practice, heading its German debt and capital advisory team and advising on cross-border debt financings.

LP watch

Institution: Los Angeles County Employees’ Retirement Association
Headquarters: Pasadena, US
AUM: $69.59bn
Allocation to alternatives: 25.7%

Los Angeles County Employees’ Retirement Association agreed to increase its illiquid credit target allocation from 3 percent to 7 percent at its May investment board meeting, a contact at the pension confirmed to Private Debt Investor.

The US public pension also plans to add illiquid credit to its emerging manager programme by the end of 2022, as previously reported by PDI.

LACERA currently allocates 2.6 percent of its full investment portfolio to illiquid credit, which includes private debt. The pension’s chief investment officer is Jonathan Grabel.

Today’s letter was prepared by Andy Thomson with John Bakie and Robin Blumenthal

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