Loan Note: US mid-market defies the doubters; France claims Europe top spot

Golub Capital index finds US mid-market companies proving surprisingly resilient. Plus: France challenges the UK's status as Europe's leading private debt market; and Värde Partners anticipates a deep credit cycle. Here's today's brief for our valued subscribers only. 

They said it

“We’re… seeing an increase in restructuring work with many medium-sized businesses struggling with the increased cost of debt, rising costs and squeezed margins”

Mark Supperstone, managing partner at ReSolve, the UK advisory and investment firm, in a press release issued following an Office for National Statistics report showing rising insolvencies

First look

Still on the up: US mid-market is shrugging off economic concerns (Source: Getty)

Golub report finds strong growth, resilience
In January and February 2023, mid-market private companies in the US saw strong growth in both revenue and earnings across all four sectors tracked by the Golub Capital Altman index: consumer, healthcare, industrials, and technology.

Golub, a mid-market lender, released numbers from its index on 13 April 2023, using as a database the 110-115 companies in its loan portfolio.

The data suggests, in the words of chief executive officer Lawrence Golub, that “many analysts continue to underestimate the health of the US economy and the resilience of private equity-owned businesses”.

The standout sector for the first two months of the first quarter was technology, with year-over-year revenue growth of 15.5 percent, and a growth for earnings (EBITDA) of 19 percent.

Edward Altman, professor of finance, emeritus at the NYU Stern School of Business, said in a press release announcing the GCAI numbers and the release of the Golub Capital Middle Market Report, “Growth exceeded our expectations across all four sectors we track.”

There is some reason to be concerned about the consumer sector, though. Revenue grew in this sector because the “tailwind of falling energy prices more than offset the headwind of rising interest rates on mortgage and credit card debt,” Altman said.

Although revenue grew 10.6 percent YoY in the consumer sector, earnings grew by only 0.4 percent. The report refers to this as a “softness in consumer profit and cashflow growth compared to prior quarters”.

In the overall database, on the other hand, earnings grew 10.9 percent, nearly keeping up with revenue growth (11.1 percent). This earnings growth comes despite a strong labour market, which suggests cost control measures are working.

France takes top spot in Europe
France surpassed the UK to become Europe’s most active private debt market in Q4 2022, according to data from Deloitte.

In its latest Alternative Lender Deal Tracker update, Deloitte found that France recorded 50 deals in the final three months of last year, ahead of the 42 deals seen in the UK. This severs the UK’s unbroken streak of being the number one market for private debt deals since Deloitte began recording activity in Q4 2012.

The French market accounted for 28.1 percent of transactions in H2. On an annual basis, French deals increased by 31.9 percent, while Germany and the UK saw activity fall by 5.7 percent and 24.0 percent respectively.

Värde hails deep credit cycle
It’s what distressed and special situations investors have wanted for a long time: “real depth and persistence” in the credit cycle, as outlined in the latest Värde Views credit market update from fund manager Värde Partners.

In its update, Värde says its conviction has increased since the start of the year that the cycle will be deep, hailing it as “an incredible time to be a provider of capital and liquidity in credit markets”. The firm says the current level of stress and gaps in capital provision have not been seen since the global financial crisis.

Particular areas of opportunity highlighted by Värde include:

  • Senior lending to facilitate refinancings, acquisitions and restructurings
  • Gap capital in the form of mezzanine or preferred equity to bridge the void between senior lending proceeds and existing debt balances
  • Special situations where current values break in existing senior or mezzanine debt and equity is out of the money.


CVC CLO defies volatility
Fund manager CVC Credit has closed Cordatus XXVII, the fourth collateralised loan obligation of 2023 to be issued by CVC’s €36 billion credit platform. The CLO was around €400 million and brings the firm’s total CLO issuance for 2023 to approximately €1.6 billion. Goldman Sachs acted as lead arranger.

Cordatus XXVII was the first CLO priced in Europe since the volatility stemming from the events at Silicon Valley Bank and Credit Suisse. It was raised from a broad group of new and existing investors, and the portfolio was ramped at what the firm described as an attractive weighted average price despite the ongoing market volatility.

Guillaume Tarneaud, partner and head of European performing credit at CVC Credit, said: “We are delighted to have priced our second European CLO of the year, building on over €10 billion of European CLO AUM we achieved for the first time earlier this year.”

British Land veteran joins Precede Capital
Precede Capital Partners, a UK real estate development lender, has appointed Nigel Webb to its board as a non-executive director. Webb will also sit on Precede’s credit and ESG committees.

Webb has 30 years of experience leading large-scale development projects at British Land, one of the largest property development companies in the UK. As director and head of development, he led London office developments such as the Leadenhall Building and Ropemaker Place. He oversaw British Land’s activities throughout the UK and Ireland in sectors including office, retail, residential and logistics.

Precede is involved in large-scale loans for complex developments across sectors including residential for sale, build-to-rent, later living and purpose-built student accommodation. Since launching in March 2021, it has originated and arranged almost £1.7 billion ($2.1 billion; €1.9 billion) of loans.

Silbury steps in for UK development loan after lender pulls out
Silbury Finance, a development lender backed by Oaktree Capital Management, has provided a £39 million senior loan for the acquisition of a 20-acre brownfield site in Dorking, southeast England.

The loan was made to Stonegate Homes, which has secured planning permission to develop an initial 226 homes on the site. Silbury completed the deal in 15 working days after another lender was unable to complete on the purchase amid difficult economic conditions.

The deal is Silbury’s second loan to Stonegate Homes, which hopes to further develop the site known as Pixham End with applications to build an additional 41 townhouses, a retirement living development and commercial space.

LP watch

Institution: Virginia Retirement System
Headquarters: Richmond, US
AUM: $102.5 billion
Allocation to private debt: 13.8%

Virginia Retirement System has confirmed $550 million of commitments to private debt funds during its April investment advisory committee meeting.

The pension has committed $250 million to Ares Pathfinder II, $150 million to Ares Capital Europe VI and a further $150 million to Oaktree Opportunities Fund XII.

VRS has a current private debt allocation of 13.8 percent of its $102.5 billion investment portfolio.

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