PDI Awards 2015: Europe

LENDER OF THE YEAR
ICG

Highly commended: Ares Management, Alcentra

The overall lender of the year category is usually a closely contested category and this year proved no exception. Each of the three shortlisted lenders deployed at least €1 billion, with Ares Management on course to lend €2 billion when it was shortlisted in December. In the end, though, the voters opted for ICG as overall lender, confirming its crown as the firm also prevailed in the senior and junior lender of the year categories.

Speaking to PDI, Benoit Durteste, who heads the firm’s mezzanine strategy and sits on both the investment and executive committees, acknowledged that the manager has, as one of the longest-lived incumbents in Europe, benefitted from the wider rise in private debt and stayed ahead of the curve by embracing new strategies and expanding into new markets.

With around €1.4 billion deployed in 15 deals in 2015, the senior strategy clipped along last year and closed on its second fund at the €3 billion hard-cap. That €3 billion was matched by Europe VI, its flagship mezzanine fund.

SENIOR LENDER OF THE YEAR
ICG

Highly commended: Ares Management, Alcentra

Last year was stand-out for each of the firms on our shortlist for different reasons. Alcentra proved that borrowers like what it does with several follow-on deals for existing clients, while Ares extended one of the largest financing packages solely arranged by a direct lender when it did the €300 million Fintrax financing. ICG, with Hayfin, was one of the main arrangers behind a $400 million unitranche loan backing Chiltern International’s acquisition of Theorem Clinical Research, with Sankaty and Highbridge joining the club deal.

With such strong contenders it’s little wonder that just two votes separated ICG and Ares Management with Alcentra a far from distant third.

ICG is a tier one player in a small group, says head of direct lending, Max Mitchell. Cut the numbers any way, he adds – deals done, money deployed, size of loans – and the theme is the rise of the asset class.

The Chiltern deal, which did not involve a private equity sponsor points to the other big theme. “We are seeing increasing interest [from] and usage [of direct lenders by] non-private equity-backed companies and I see that as the trend for the next three to five years which is really exciting,” says Mitchell.

JUNIOR LENDER OF THE YEAR
ICG

Highly commended: Highbridge Principal Strategies, GIC

The European syndicated mezzanine market has not recovered since the financial crisis. Demand for subordinated debt has not gone completely, though, it just means sourcing is more difficult. Highbridge is a well-respected subordinated lender and Singaporean sovereign wealth fund GIC made some impressive deals as it moved into private debt in Europe on its own account. Ultimately, however, both firms were firmly beaten by European mezz veteran ICG.

The firm closed its sixth mezzanine fund on €3 billion in July and larger funds means larger deals, says Benoit Durteste, and Fund V has three transactions of more than €200 million in the portfolio. That vehicle is also one of the firm’s most conservative mezz funds which is significantly lower than pre-crisis vehicles with an average of just under five times leverage.

Returns on the vehicle so far are in the upper teens, says Durteste, adding that those numbers mean little for the wider European market but say a lot for the situations that ICG sources.

LOWER MID-MARKET LENDER OF THE YEAR
Beechbrook

Highly commended: Idinvest, Proventus Capital Partners

Based on our vote, each of the shortlisted firms for lower mid-market lender of the year is respected by the private debt community. Once again, however, UK-headquartered Beechbrook stood out.

Looking at what the firm achieved last year, it’s not hard to see why. The firm invested €50 million in six deals over the 12 months. On top of that, it launched a new sponsorless lending strategy focused on UK small to medium-sized enterprises (SMEs) and reached a first close of more than half its target.

Asked how he managed it, founding partner Paul Shea says: “We researched the market opportunity, put together a high quality investment team then worked with existing and new investors to structure a fund that worked for all parties.”

He’s particularly proud that the firm managed to continue deploying its second UK and Nordic-focused mezzanine fund while getting the new strategy off the ground. As for 2016, the firm is starting to deploy the UK SME Credit Fund and will appear again to fundraise for its third mezz fund, as PDI reported last year.

DISTRESSED DEBT INVESTOR OF THE YEAR
LCM Partners

Highly commended: Apollo Global Management, Highbridge Principal Strategies

European non-performing loan (NPL) portfolio investment has been flavour of the week for a couple of years, so it’s no surprise to see this year’s distressed award goes to a player active in that space. Of course, LCM Partners invests about as much in non-core performing portfolios as it does in NPLs, but that, in this market, is a strength that has attracted investors to the firm.

The firm’s mix of cut-price distressed and performing assets keeps it delivering cash to investors throughout the cycle. LCM has raised €650 million from two cornerstone investors for its first own-branded fund which has a target of €1.5 billion.

Asked about the firm’s achievements in 2015, though, and chief executive Paul Burdell points to the deals the firm did last year. “We closed several significant off-market transactions – deals that were to the benefit of both sides which is always important.”

The deals he is alluding to include acquisitions like the firm’s purchase of a €320 million portfolio of more than 20,000 leasing assets from Dutch lender ING. LCM deployed €608 million in around 15 portfolios and delivered unlevered net returns of 12.2 percent in 2015, Burdell adds.

CLO MANAGER OF THE YEAR
Blackstone/GSO Capital Partners

Highly commended: Partners Group, 3i Debt Management

With Blackstone/GSO Loan Financing (BGLF) in place, the firm’s listed CLO originator vehicle that covers the issuer from both a risk retention point of view and allows it to ramp new CLOs to between 70-80 percent before they price.

And that ability to source most of the assets in the vehicle before they price is key to the firm’s CLO success, says Alan Kerr, a senior managing director in the firm’s debt funds group.

“[It’s] important because firstly, when we’re out with a CLO and it’s being marketed by the arrangers, the investors have a lot of transparency around the credits that we’re invested in and secondly, having a more fully ramped portfolio is important for the economics for the equity first loss.”

The importance of the structure for the firm’s CLO business was emphasised again last month when BGLF sought permission from shareholders to invest in the US equivalent of Blackstone’s European risk retention originator vehicle ahead of looming risk retention rules in the US. Blackstone issued three CLOs raising €1.24 billion in total last year equal to almost 11 percent of 2015 European CLO issuance.


INFRASTRUCTURE DEBT MANAGER OF THE YEAR
Macquarie Infrastructure Debt Investment Solutions

Highly commended: Allianz Global Investors, AMP Capital

Macquarie’s infra debt platform MIDIS ran away with the infrastructure category for the second year running. Strong dealflow has seen the platform make investments ranging from social housing to airports and from a children’s hospital to the refinancing of a restructured swap for a water utility.

The breadth of the platform is impressive on both the asset allocation side and in terms of fundraising. Austrian insurer UNIQA was set to allocate €1 billion to infra debt with the manager, as revealed by PDI.

More publicly, the firm closed its UK inflation-linked debt fund on £739 million ($1.07 billion; €952 million) in commitments which along with managed accounts brought the platform to £2.5 billion in July. §It hasn’t been a bad year for our runners-up, either. Allianz Global Investors has invested about £120 million from its infrastructure debt fund, which has a target of up to £500 million, while AMP Capital is busy raising its third fund after deploying its $1.1 billion global fund.

REAL ESTATE DEBT MANAGER OF THE YEAR
AXA Real Estate

Highly commended: ICG-Longbow, DRC Capital

Garnering almost half of the votes in this category, AXA Real Estate really stood out in 2015. It closed its ninth debt fund in June on €2.9 billion, beating its target by €400 million and has also raised money from investors through separately managed accounts.

And while fundraising is important, doing deals is the key to the strategy, says Isabelle Scemama, head of the funds group within AXA’s real assets division. “What matters for us is our ability to deploy. We always try to match the capital from clients with our ability to deploy,” she says.

Over 2015, the insurer’s real estate debt platform deployed close to €4.6 billion and depending on market conditions could do the same this year, says Scemama.

The firm is also gradually moving into US mortgages as well as Europe, she adds.

DEAL OF THE YEAR
IGM Resins – HIG Whitehorse & Deutsche Bank

Highly commended: Fintrax – Ares Management; Fintyre – GSO Capital Partners

Each of the deals shortlisted this year stood out for one aspect or another. Fintrax, at €300 million, was one of the largest ever deals underwritten by a private debt manager, while Fintyre was one of GSO’s first deals in Italy and showed that the European non-bank lending landscape continues to change and expand as regulators embrace the wider choice of financing and banks start to co-operate with alternative lenders.

It was neither size nor jurisdiction that made IGM Resins stand out, but structure. The borrower needed a combination of term debt – a €25 million unitranche – and asset-backed financing, €12 million in secured lines. But with a complex corporate structure and assets scattered across the globe, building a deal with a complex series of intercreditor agreements took two lenders, five law firms and debt advisor Altium to get over the line.

“IGM Resins is a complex borrower – a chemical manufacturer and distributor spanning four continents. The key to the deal was the provision of two different forms of capital, ABL and unitranche, from two different capital providers – rarely seen in Europe. It provided a capital solution for a complex business situation,” says HIG’s Claire Harwood who worked on the facility.


FUNDRAISING OF THE YEAR
ICG

Highly commended: BlueBay Asset Management, GSO Capital Partners

Raising money quickly is something each of the shortlisted firms proved their prowess in during 2015. BlueBay beat their hard-cap with an almost 50 percent oversubscription, while GSO raised just shy of €2 billion in equity for their first European senior debt fund in less than a year.

ICG, however, blew both out of the water. It closed two €3 billion funds on their hard-cap last year and raised €4.7 billion of new third-party cash in the nine months to 31 December.

The firm’s fifth mezz vehicle was deployed more quickly than anticipated, says head of the strategy, Benoit Durteste. So much so that when the sixth fund reached its first close, the fifth was 98 percent invested. Lucky then that Fund VI hit its €2.5 billion target on the first close after just five months on the road, before a final close on the €3 billion hard-cap in July.

“We have a number of LPs who are essentially new to the asset class and it’s not very surprising that they focus their attention on managers with a very long track record and no-one has a longer one than us in Europe. And that track record is very good, in particular that of our funds through the crisis,” says Durteste.


INVESTOR OF THE YEAR
London Pension Fund Authority

Highly commended: Lancashire County Pension Fund, UNIQA

PDI’s first ever European investor of the year, London Pension Fund Authority (LPFA), decided to expand and improve its approach to private debt investment in 2015, says the pension’s investment manager for alternative assets, Jonathan Ord.

“We were in other commingled funds before, but the allocation was fairly minimal and given the attractiveness of the asset class for a pension fund, we wanted to increase our allocation,” says Ord.

Credit opportunities are fluid and by the time the pension goes through the process of identifying a manager, the ship has often sailed, he says, explaining why the fund opted for a £100 million-£150 million ($145 million-$217 million; €129 million-€193 million) flexible managed account with Apollo Global Management.

Setting up the account required a tender process which the pension expanded to include 99 affiliated pensions under the Local Government Pension Scheme, any of which can now mandate one of the four shortlisted firms: Apollo, Ares Management, Babson Capital and GSO Capital Partners.

And the pension isn’t done at that. As the pensions of LGPS consolidate – LPFA is combining with fellow award contender Lancashire – the newly formed fund will make a significant allocation to private debt, says Ord.

FUND FINANCIER OF THE YEAR
HSBC

Highly commended: Royal Bank of Scotland, Lloyds

The wider growth in alternatives has made the managers within the sector an attractive client base for banks that, on the credit side at least, are also their competitors. PDI established this new award to reflect the growing importance of financing for funds be it through subscription lines, fund leverage or other warehousing and bridging facilities.

And for the banks who lend to funds, it’s a growing opportunity with important relationships that can be cultivated across other units. More and more lenders are getting in on the act, say market sources.

This year’s winner, HSBC, has a strong reputation and the head of the bank’s asset-backed lending unit, Nigel Batley, says that they target the largest 30 fund clients, seeking to become relevant to them globally.

There’s a clear increase in demand for financing lines from funds. “It’s now become much more of a strategic play where they look to put some sort of semi-permanent bridging finance into those funds to enable them to generate better levels of return within those funds. So the financing is being used much more effectively and cleverly by the managers and I think the banks have responded to that,” says Batley.

LAW FIRM OF THE YEAR
Ashurst

Highly commended: Reed Smith, Proskauer

Ashurst made our law firm of the year shortlist on the basis of both its fund formation practice and recommendations for the strength of its work on the transaction side. Speaking to fund formation partners Diala Minott, Jeremy Bell, Piers Warburton, it becomes clear that alongside headline alternative lending clients like ICG – the firm worked on two €3 billion funds for the asset manager last year – the team turns its hand to a variety of debt fund structures, including using the expertise within the firm’s insurance practice to tailor structures for insurers.

“We’re seeing a lot of interest in these funds from insurers. They’re looking at fund structures quite closely to try to work out what their regulatory capital charge will be and we’re structuring those funds so that a ‘look through’ approach to the underlying assets can be taken,” says Minott.

On the deal side, Ashurst was one of the five law firms that worked on the financing for IGM Resins and PDI’s deal of the year for 2015.


PLACEMENT AGENT OF THE YEAR
Arbour Partners

Highly commended: Citigroup, First Avenue

With a large range of external factors pushing investors towards private debt, it would be easy to assume that the placement agent’s role is like that of a doorman at a fancy hotel – greet clients as they arrive, flash a reassuring smile that tells them they will have a wonderful time before turning to the next arrival.

But there are still a growing number of fancy hotels/debt managers competing for that capital – 427 debt vehicles on the road, according to PDI Research & Analytics. Which is why the placement agent category was hotly contested this year.

With four main credit management clients, our winner, Arbour Partners, has specialised and does a lot of work around educating investors about what exactly smaller managers like Beechbrook do and why that can be compelling, even against much larger names.

“If you have too many clients or you work on too many asset classes, you’ll find that you’re not actually a very insightful person,” says Arbour’s James Newsome, explaining his philosophy.