Borrowers…get comfortable

But as one manager put it to me recently, there’s really no need for the scepticism. Set against other funding options like private equity, a bespoke debt financing solution can tick all the requisite boxes. There’s no need to dilute your equity, no need for regular reporting as there might be with a publically-traded bond, and there’s little risk of that debt being syndicated far and wide, such that the lender you end up with down the line looks very different to the one sat opposite you in the boardroom when the contract was inked.

Our Capital Talk interviewee this month, THL Credit chief executive Jim Hunt, gets this. He speaks persuasively of the need for borrowers to get to know their lenders, and argues the only way they’ll really do that is by taking the plunge and discovering that these private debt types really aren’t so bad after all.

“We want to know our borrowers,” Hunt told PDI during the interview. “We’re really comfortable with borrowers knowing their lenders. We want borrowers that have gotten to know us, understand what value we can bring to the table, and want the kind of partnership where if there’s adversity down the road, we have the relationships to work things through most constructively.”

And things can go belly-up, as The Blackstone Group discovered with German plastic film manufacturer Klöckner Pentaplast. We dissect the deal in this month’s Termsheet on page 17, explaining how Strategic Value Partners led a team of loan-to-own investors in negotiating a restructuring of the business.

Elsewhere, we attempt to pick through the minefield that is regulation and compliance on page 23. There’s a reason compliance is one of the few growth areas within financial services at the moment, as regulators seemingly strive to outdo each other with ever-more punitive and restrictive directives. And we’re just one month away from the implementation of Europe’s Alternative Investment Fund Managers Directive.

It feels that we’ve been writing about AIFMD for years, and at last it’s finally here (with a one year grace period in certain jurisdictions, of course – these things move slowly…). In the UK, attempts by the Treasury to spark lending via the Funding for Lending Scheme have been met with a critical response so far, as we discuss on page 10. It increasingly appears state intervention in the lending markets is doomed to fail.

Across the Pond, we look at how regulators are keeping a watchful eye on leverage levels, which continue to creep upwards as the economy recovers.

Two metaphorical giants of the debt markets, Oaktree Capital Management founder Howard Marks and one-time junk bond king Mike Milken, go head to head on page 11. Their discussion on stage at Milken’s California conference last month made for riveting viewing.

Lastly, ahead of our Real Estate Debt Financing supplement next month, Laxfield Capital’s Emma Huefpfl charts the development of this specialist niche on page 28.

We hope you enjoy the issue.

Oliver Smiddy