Study: Debt funds make in-roads in German mid-market

Non-bank lender activity in the PE-backed financing space increased in 2014, research by Altium shows.

Debt funds have gained market share in German mid-market financing, the most competitive national market in Europe, according to Altium Capital’s mid-market deal monitor. The gain in market share is a result of funds accepting lower returns as well as becoming more flexible on covenant structures and other documentation terms, said Norbert Schmitz, managing director of Altium.

“On a European basis and even on a German basis, the debt funds have made market share,” Schmitz told PDI. “The competition is pretty big but some of them have certainly shown that they are here to stay.”

Now that debt funds have a foot firmly in the door, Altium anticipates a competitive financing environment in 2015 as banks fight to hold onto their market share.

Altium publishes a run-down on senior mid-market financings executed in the DACHs (Germany, Austria and Switzerland) region of Europe each quarter. Gathering information directly from lenders and data providers, the firm also publishes European-wide data on unitranche and subordinated debt raised for private equity-backed mid-market financings of between €20 million and €500 million.

The latest edition includes data from both the final quarter of 2014 and a full year-on-year comparison.


The monitor also looks at the number of unitranche deals done across Europe. Last year, 62 were executed, 32 more than the 27 unitranche financings concluded in 2013. The main unitranche markets were the UK (22) and France (18).

The German market experienced one of the most dramatic rises in the product, with 13 unitranche deals in 2014 following four during the twelve months before.

Altium says the research shows that debt funds have successfully entered the European mid-cap space but points to concerns about whether the more flexible structures deployed by funds are sustainable in the medium term.

When bank financing is available, some borrowers prefer to opt for it because they are more comfortable with the idea of facing a restructuring with a club of banks, than with a single lender using an untested instrument, Schmitz added.

The firm says that the subordinated debt market will remain broadly flat and focused on key markets; the UK, France and Germany.

Altium Capital provides mid-market firms with M&A and debt-related financial advice.