Unitranche deal count almost doubles in Europe – study

Banks still dominate mid-market lending in Europe but unitranche loan deals have grown 61 percent year-on-year, according to a survey by AlixPartners.

The debt advisory firm said 111 unitranche deals were signed in 2015, compared with 69 a year earlier. Combined with an increase in subordinated debt instruments, this contributed to a fall in senior financing’s overall market share. Senior debt accounted for 62 percent of total deals done last year, down from 70 percent in 2014.

The biannual survey, which has been expanded to include Italy, Poland, Portugal, Spain and Switzerland, covered about 80 bank and non-bank lenders in Europe, and encompassed deals with debt of between €20 million and €300 million.

Banks still hold a majority of market share, at 67 percent of all deal participations in 2015, but more alternative lenders are making their presence felt at the lower and upper ends of the market.

On the bank side, HSBC remained the most prolific mid-market leveraged lender, recording 67 deal participations over the course of 2015. Royal Bank of Scotland (RBS) (65) and Lloyds (57) made up the top three. 

Overall, bank deal share contracted marginally last year, with total deal count falling an average of 4 percent across the top seven lenders. That contrasted with the top six non-bank lenders increasing their average deal count by 36 percent, the study found.

“We are continuing to see strong growth in non-bank lending, in terms of the number of transactions completed, the number of funds active in mid-market direct lending, and the total amounts raised by these funds. As a result, the market has become more competitive leading to increasingly attractive terms for borrowers,” said Jacco Brouwer, head of debt advisory at AlixPartners.

Of the 111 unitranche loans, 72 percent were bilateral deals. Some banks, acknowledging the growing popularity of unitranche, have started to participate in larger unitranche deals, including Bank of Ireland, Lloyds and Macquarie. New alliances, like that of Barclays and Ares or RBS’s partnership with Hermes, AIG and M&G Investments, could see this aspect of the market grow further, the study concluded.

This year has not got off as busy a start as 2015, Brouwer told PDI. 

He said wider market concerns, including stock market volatility, the slowdown in China and the UK’s Brexit vote, were feeding into an environment that was not conducive to investment. And while dealflow was down, non-bank lenders should continue to make strides in the market, although how much further they can penetrate is an unanswered question, he added.

“Looking ahead, we expect to see further growth in the non-bank funding market in 2016 as Europe continues its transition towards a more US-style financing market. In the mid-term, we believe that competition in Europe will become more intense with increasingly scarce dealflow, which is likely to see more focused attempts by key funds to source proprietary deals and penetrate regions traditionally dominated by local banks, such as the Benelux, Iberia, and the Nordics,” said Tom Cox, a director in AlixPartner’s debt advisory team.