Senior debt market strong in Germany, UK

Germany saw a significantly higher than usual number of financings in the first quarter as political events made no apparent impact.

The German market saw 17 senior debt financings in the first quarter of this year, according to investment bank GCA Altium’s Mid-Cap Monitor. This compares with an average of 7-8 deals in recent first quarters.

The Q1 total contributed to a ‘last 12 month’ (LTM) total of 74 deals, the largest since the Monitor was launched in 2013.

The first-quarter total was mainly driven by dividend recaps, re-financings and add-on acquisitions, which accounted for around 60 percent of deal volume. In recent quarters, buyouts had dominated deal flow.

Despite the appetite from banks to underwrite new deals, the vast majority of financings were club-style.

The Monitor also noted that a trend of lower margins continued in Q1, while flexibility on documentation increased as banks competed with debt fund structures.

The report’s Q2 outlook predicted that the number of deals would continue at a high level, albeit below the numbers recorded in recent quarters. The number of active banks and debt funds will continue to increase, leading to further pressure on fees, margins and documentation.

Meanwhile, the UK market saw 25 senior deals completed in the first quarter, which was the same number as in the previous quarter.

The proportion of leveraged buyouts increased to 52 percent of deals, compared with 36 percent in the final quarter of 2016. Other popular deal types include re-financings and recaps.

The Monitor noted that senior lenders in the UK continued to offer aggressive structures both on pricing and terms. Bank lenders are still dominant but increasing numbers of credit funds are providing senior-type structures.

A strong second quarter for the UK is predicted with recent large fundraisings from institutional lenders increasing the amount of liquidity available.

The Monitor observed that neither the German nor UK market appeared to have been impacted to any significant extent by political events such as Brexit and the US and French elections.