Loan Note: US debt issuance down amid sharp LBO decline; fresh hope for Vietnamese credit funds

Leveraged buyouts bear the brunt of debt decline in US mid-market; opportunity opens up for private credit funds in Vietnam; plus the latest from the hiring frontline. Here's today's brief for our valued subscribers only. 

They said it

“SMEs continue to struggle with accessing finance and… this lack of availability is costing them and the UK economy growth opportunities at a time when it is needed the most.”

Douglas Grant, group chief executive officer at Manx Financial Group, the UK financial services firm

First look

Heading down: debt issuance fell last year in the US mid-market, especially for LBOs (Source: Getty)

Debt decline in US mid-market
Despite a sharp drop in US mid-market leveraged buyouts last year, debt issuance overall in the US mid-market saw only a relatively minor decline of 4.3 percent from $38.3 billion in 2021 to $36.7 billion in 2022, according to Fitch Ratings’ LevFin Insights.

Having made a weak start to the year, issuance picked up – with the fourth quarter’s total issuance of $11.1 billion only just over 1 percent down on the fourth quarter of 2021.

Meanwhile, debt issuance for mid-market leveraged buyouts was only $1.4 billion in the fourth quarter of last year – representing a 68 percent year-on-year drop. During this quarter, LBOs as a proportion of overall issuance fell to 13 percent, compared with 40 percent in the equivalent quarter of 2021.

Total US mid-market leveraged buyout volume fell 52.3 percent during 2022 to $5.0 billion, the lowest level it had reached since 2015. It was also a year when the popularity of unitranche saw a sharp reverse. From the record $38 billion of unitranche in 2021, the total fell 73 percent to $10.2 billion last year.

The percentage of equity contributions in deals went up to 61 percent in the fourth quarter of last year, above the five-year average of 56.5 percent, reflecting greater caution from lenders.

A door opens in Vietnam
Of all the side effects produced by interest rate rises, arguably one of the less anticipated was the boost it would give to private credit funds operating in Vietnam.

According to a primer published by law firm Mayer Brown, Vietnam became an active market for commercial banks, bilateral development finance lenders and multilateral financial institutions when it threw open its doors to foreign investment in the 1990s. A high level of competition between these organisations pushed down fees and margins and made it challenging for private credit funds to achieve return targets.

But the interest rate hikes by the US Federal Reserve in recent months have seen a spike in US dollar base lending rates, impacting the rates commercial banks and other traditional lenders can offer Vietnamese borrowers. This impact does not affect credit funds, which don’t rely on the interbank market to fund lending and investments. As a consequence, the spread between traditional lenders and credit funds has reduced.

The primer focuses on 10 key issues for lenders to consider in the Vietnamese market.


17Capital promotes across five teams
London-based manager 17Capital, coming off a record deployment year in 2022, has made 13 promotions for 2023.

The promotions stretch across five distinct teams. In the investment team, Stephen Quinn, who joined in 2019 as managing director has moved up to senior managing director. Federica Bogoni, who joined in 2019 as associate, has become vice-president. Quinn spoke of the value of NAV financing in an interview with affiliate title Private Equity International in November.

Investor relations has also seen two promotions: Pauline Chatin, a director since 2021, will now head IR for France, Switzerland, and southern Europe; Isabelle Richards, an associate since 2021, moves to senior associate.

17Capital promoted two in marketing and communications, with Alex Walker now heading the team (he joined in 2018 as director) and Catrin Watts becoming senior marketing associate (she joined in 2019 as executive assistant, and later became marketing associate).

There are five promotions on the finance team: Nick Evans and Shamyl Khushal are new finance directors, having each joined in 2022; Andrew Burder is also a new finance director, having joined in 2021. Each of the three was formerly a fund controller.

Becky Wang is now fund operations manager, having joined in 2019 as fund accountant. Simon Bowley, technology director, joined in 2020 as technology innovation manager.

Oaktree took a majority stake in 17Capital last year. In 2022, the firm, a pioneer in preferred equity and NAV lending, deployed $4.1 billion across 16 investments, according to affiliate title Private Funds CFO. More than half of that ($2.1 billion) went to preferred equity, with the remainder in six loans.

CIO heads for Hilltop
Hilltop Credit Partners, a pan-European real estate credit investment manager, has appointed Claudiu Gheorghita as chief investment officer to continue to build its loan book across the UK and bolster the firm’s expansion into the European market.

The firm said his appointment will broaden and strengthen Hilltop’s investment management platform and leverage its in-house technology-driven loan underwriting platform, Hilltop Credit Stream, to capitalise on the opportunities within private real estate credit that are expected within the next 24 months across both UK and mainland Europe.

With more than a decade of experience in real estate principal finance for two investment banks, Gheorghita joins from Nomura’s Real Estate and Securitised Products division, where he spearheaded the value-add and opportunistic principal finance business. Before Nomura, he was at Macquarie, responsible for originating and underwriting debt and equity real estate transactions across UK and mainland Europe.

Sharma back at Sidley Austin
The London office of US law firm Sidley Austin has announced that Kieran Sharma has rejoined the global restructuring group as a partner. The addition of Sharma follows the recent arrival of Stephen Hessler as the firm’s new global practice leader for the restructuring group.

Sharma joins from investment firm Strategic Value Partners where he was a director in its European investment team, focusing on credit, distressed debt and private equity opportunities. Prior to joining SVP, Sharma worked for three years in Sidley’s restructuring group in London as a senior associate.

Sharma’s practice involves working closely with private equity, hedge funds and other investors (including creditors and debtors) providing advice on strategic investments across the capital structure, as well as the acquisition and restructuring of distressed businesses.

LP watch

Institution: Maine Public Employees Retirement System
Headquarters: Augusta, US
AUM: $18.5 billion
Allocation to alternatives: 49.3%

Maine Public Employees Retirement System has made a €75 million commitment to Ares Management‘s latest senior debt vehicle, a source at the pension has confirmed.

The pension has committed €75 million to Ares Capital Europe VI. MainePERS has been a long-term investor into funds managed by Ares Management, having committed to Ares Capital Europe V in September 2020 and Ares Capital Europe IV in April 2018.

Fund IV had, as of March 2022, called almost 80 percent of MainePERS’ capital commitment and Fund IV has called 40.9 percent. In Q1 2022, the pension reported that Fund IV’s net IRR was 3.8 percent.

The $18.5 billion US public pension has a private debt target allocation of 10 percent, which currently sits at 8.3 percent. As of January 2023, its private equity portfolio was valued at $1.5 billion. The pension has predominantly targeted corporate vehicles seeking senior debt returns.

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