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Private debt 'more evolution than revolution'

One of the major issues affecting private debt funds is the attitude of some managers towards covenants, delegates at the LMA conference heard.

Private debt is positive and complementary to banking, said speakers at the annual Loan Market Association conference in London. The industry lobby group was established by banks but more and more debt managers and institutional investors have joined the body. 

The development of the young market is arguably “more evolution than revolution”, remarked Roland Boehm, global head of debt capital markets loans at Commerzbank. His comments followed an audience poll where 50 percent predicted that private debt will grow by more than 10 percent over the coming year.

One issue holding back the growth of private debt and a pan-European private placement market though is the attitude of many institutional investors to covenants. 

Terence Shanahan deputy global head of syndicate at Société Générale, observed that “in general institutional investors place little value in negotiating covenants”. 

He claimed that many rely on rating agencies to do the analysis for them.

“What's changing though is liquidity is evaporating from the market place and institutional investors are realising that they can't run for the hills when things go wrong. They are realising that covenants do have value and it's worth sitting at the table to work them out,” added Shanahan. 

Keith Taylor, head of loan syndicate EMEA at Barclays, commented that private debt had a role to play in supporting growth. “Growth is a massive issue and private markets certainly play a part in that. The market is still fragmented at the moment but we are seeing private debt deals getting bigger. Different borrowers are taking advantage,” he said.

Other notable trends in the loan market during the last 12 months include a big uptick in refinancing in Southern European markets, Janin Campos, head of corporate syndicated lending, EMEA & Asia for Spanish lender BBVA, said. 

Volume in Spain has increased 40 percent year-on-year as of June 2015, whereas activity is flat or even down slightly in more Western European economies. In Spain and Portugal, Campos predicted there would be less refinancing in 2016 and more decent M&A opportunities. 

Updated on 29 September to reflect additional comments.