PDI Capital Structure Forum: The US view from Europe

PDI dishes out key takeaways from day two of its London conference, from differing regional approaches to club deals to appetite for growth debt.

European alternative lenders, their investors and advisors all gathered to hash out the market’s toughest questions on day two of PDI’s Capital Structure Forum in London. Here are some key takeaways.

In a European restructuring, lenders shouldn’t be afraid to flex their muscles

While corporate restructurings hardly portend easy conversations among all the stakeholders, one turnaround expert advised lenders to be prepared to confront a hostile private equity sponsor.

“The last thing you want is a fair fight,” RLT Advisory founder Richard Thompson said, adding that private equity firms that took a more constructive approach in difficult situations normally have a better reputation than those that take a more combative approach.

In the US, mid-market lenders and their private equity sponsors often take a collegial approach to workouts, though credit managers have said it can be important to be assertive but fair when demands on the lender may be too high.

Another key component of restructurings is divorcing the idea of fixing the balance sheet and the turnaround, he said. Just because a company has a more sustainable financial position doesn’t mean the company is ready for takeoff, he noted.

US lenders go to the club, Europeans not so much

A common refrain among credit managers is that relationships are everything. But that phrase may take on a slightly different connotation in the US than in Europe.

Speaking on a panel about closing deals, Crescent Capital Group’s James Burns noted relationships with private equity firms are paramount for credit managers that focus on sponsored deals because the lack of club deals or syndication in Europe.

In the US, it’s not uncommon for mid-market lenders to pull each other in for deals, making not only a firm’s bonds with private equity sponsors important but also a credit managers rapport with its “competitors”.

Not only does it likely reflect the maturity of the US market, it is another avenue of dealflow for US credit managers, particularly the mid-sized ones that cannot write cheques worth hundreds of millions of dollars.

Europe is chasing the US in growth debt

Growth lending in Europe right now has relatively little competition. The fallout from the financial crisis means fewer banks are operating in the space beyond providing limited overdraft facilities and other banking services.

There’s also little competition from the US, where growth lending is more developed, as most US managers will primarily focus on the UK and Ireland and avoid straying into continental Europe. Notable US growth lenders include Golub Capital, which has a late-stage lending platform, and a TPG Sixth Street Partners, which is raising a dedicated fund called TSSP Capital Solutions.

– John Bakie contributed to this report.