CVC Credit Partners, the credit management business of CVC, operates across three investment strategies: performing credit, private lending and global credit opportunities/special situations. The firm established its first European direct lending vehicle in 2014 and its current fund is focused on directly originated senior debt.
How has the dealflow been this year? Has the prospect of Brexit had an impact?
The environment felt more subdued from a dealflow standpoint around the beginning of the year. Historically, the first quarter is usually a slower quarter, and I think the disruption in the markets in Q4 last year and Q1 this year due to oil price moves and a slowdown in Chinese growth put everyone slightly on the back foot – dealflow tends to get a little slack when there is broader uncertainty.
Since the end of the first quarter, inquiries have been very steady and, interestingly, we haven’t seen a meaningful drop in dealflow vis-à-vis Brexit. That said, I think people are more cautious about sterling-denominated assets leading up to the vote.
As the private debt market develops, are you finding that awareness of alternative funding sources is increasing?
Yes, and that is happening in a couple of different ways. First, financial sponsors tend to be very knowledgeable about their financing alternatives and, as a result, have been early adapters in utilising direct lenders as a solution for their portfolio companies. We have found that success begets success with the sponsor community.
Second, the debt advisors have become another big educative force in the market. Europe has a strong network of advisory firms that operate across the continent and they have been aggressive in seeking alternative forms of capital for their clients. They are very much aware of what direct lending funds can do, compared to traditional banks.
Do you have a geographic/industry focus when sourcing opportunities?
We play across most industries in Western Europe, utilising the broader CVC network, though we have not taken any meaningful exposure to energy and we generally avoid single-asset financings, such as infrastructure projects.
Any plans to head to Eastern Europe?
At the moment we are focusing on opportunities across Western Europe where we have deep expertise and an expansive network that allows us to source proprietary dealflow. While we have no current plans to expand further, we always look at all opportunities on a case-by-case basis and will continue to evaluate investment possibilities across Europe.
What are the key challenges for the rest of the year?
I think that the banks have been more competitive this year than they have been in past years, particularly as the European Central Bank has adopted specific policies to encourage bank lending. Clearly, banks have certain lending targets that they have to hit, and we often find ourselves competing with them. That said, I still believe that the banks are much less aggressive than they were pre-crisis.
One of the things that many of us in the direct lending universe get concerned about is competitors driving prices down or being overly aggressive on deal terms in order to deploy capital. We stay away from deals where the pricing or structure is too aggressive for our investors, and we still see a healthy flow of opportunities generating the kind of returns that we are seeking.