Have you seen an increase or use of private equity credit funds as sources of debt capital?
Private equity credit funds only rarely invest in Austrian targets. In light of the high costs compared to a regular bank financing, this source of debt capital is only considered in bridge financing and financial workout contexts. While we have seen a few private equity credit funds who have investigated transaction opportunities, we are only aware of very few completed transactions.
Interests in private debt funds are increasing, and there are some funds which are primarily engaged in mezzanine financing in Japanese private equity transactions and distressed financing in PIPEs, but in general, the number of credit funds providing debt capital in Japanese private equity transactions is still limited.
Private equity credit funds are rarely seen in the Norwegian market. Due to the availability of bank financing on attractive terms and the well-functioning bond market, the private equity credit funds struggle to be competitive in the Norwegian market.
In medium and larger internationally arranged financings we have noticed increasing competition between traditional bank lenders and alternative non-bank lenders with funding being sought from alternative sources such as direct lending funds and other institutional investors. This is particularly the case for transactions where structural flexibility is more important than pricing. Bank lending remains relevant also in alternative financings for providing cash management and other ancillary solutions that cannot be provided by alternative lenders.
Debt funds have been steadily increasing their share of mid-market financings over the past few years, with private credit funds responsible for almost half of mid-cap loans in the first half of 2018. In addition to unitranche deals, funds are also competing to offer stretched senior facilities, at a lower price with lower leverage. Structures have also evolved to include built-in revolving facilities (often offered through co-operation with a bank) reducing the overall margin for the direct lending product. The size of deals that credit funds are prepared to underwrite has been rising and, in this competitive market, a few very strong credits have even seen unitranche financings advanced on cov-lite terms.
In recent years, we have seen a marked increase in the use of private equity funds as sources of debt capital. This can take the form of a mezzanine or Term Loan B type participation in a larger syndicated financing or a direct financing solely provided by one or more funds. The trend can be seen throughout the debt capital market, including acquisition financing as well as real estate financing for example.
Yes. There is an increasing array of funds, often on a cross border basis, which are providing debt.
Credit funds (and more broadly the granting of loans by collective investment undertakings directly to portfolio companies) are not allowed/contemplated in the Portuguese legal system; notwithstanding, in general nothing restricts private equity funds from investing in portfolio companies via shareholder credits (which will become, however, necessarily subordinated credits if they exceed a maturity of 1 year). In what concerns on the other hand foreign credit funds, we have no knowledge of the latter being active players in the Portuguese (private) debt market.
Credit funds are increasingly active in the PRC debt capital markets. They provide an alternative to banks and are sometimes able to offer more flexibility and faster execution. They have limited ability, however, to offer onshore RMB loans and facilities of a revolving nature or letters of credit.
Over the last few years, there has been a trend of some Nordic and Finnish financial sponsors raising credit funds to fund deals and to lend directly to small- and medium-sized businesses. Nonetheless, the Nordic relationship banking based financing of transactions and companies of all sizes remains strong and banks continue to be the principal providers of credit in Finland.
The weakening of banking monopoly prohibitions has led to more and more private equity funds (such as KKR) creating a lending entity in France.
The most notable shift in German sponsor driven mid-cap financings over the past years has been the increasing success of debt funds as one of the main sources of acquisition financing with figures of up to 50% of German mid-cap deals funded by debt funds. While earlier years have seen many unitranche financings provided by debt funds only, structures have continuously evolved into first-out/second-out structures featuring a built-in revolving facility, typically provided by a bank, and thus significantly lowering the overall margin for the unitranche product. Debt funds have also underwritten increasing ticket sizes (> EUR 250m) and even covenant lite unitranche structures for very strong credits.
There has been a sharp increase in the number of alternative credit funds and private equity investors active in the Irish market. The resulting uplift in Irish real estate development since the Brexit referendum has also increased opportunities for Irish borrowers/property developers to avail of capital from alternative sources. Although we have seen private equity credit funds lend through a variety of financing structures, typically funds are advanced via a secured loan or from the proceeds of a note issuance programme.
The majority of the alternative credit funds have been operating in the lower to mid-market space. Irish corporates typically obtain their term and revolving facilities from three to four relationship banks who may also offer a range of ancillary facilities, including cash management and treasury. One of the reasons why alternative credit funds tend not to form part of the club or syndicate is because regulatory constraints can preclude them from offering the ancillary facilities required by the borrowing group.
It is relatively common to see private equity funds provide debt capital – typically as the mezzanine lender in a larger financing.
The presence of private equity firms in Luxembourg is increasing consistently each year and is fuelled by the legal stability of the country, the presence of private equity firms, banks, insurance houses in Luxembourg and the creditor friendly collateral law.
Luxembourg is also a large investment fund business centre and increasingly private equity firms are using Luxembourg as their European house (whether US or other funds) or raising the capital directly in a Luxembourg fund.
Private equity credit funds like Bain Credit, GSO, TPG, Carlyle, New Mountain and KKR Credit have historically been a source of debt capital, with market share increasing in line with market share increases for private debt fund providers generally and seemingly disproportionately to commercial bank providers.
Yes, an increased level of competition between both available lenders and debt has given rise to a range of new products on the market and we have seen an increase and use of private equity credit funds and debt funds which have not previously been present on the Swedish market.
The presence of private equity credit funds has been consistently present in the deals that we have handled, so their presence has been quite consistent.