Q1 2020
Data analysis
Debtwire direct lending data
Research by
Ben Watson
Market analyst
Debtwire Par
Volume of direct lending declines in Q1 2020 as the sector reels from the coronavirus pandemic
Mid-market volume vs number of deals
Percentage of direct lending falls as volume of mid-market deals decline
Looking at just the mid-market space, direct lending activity paints an even darker picture, falling to a record low of 25% of total mid-market volume. This is a stark difference to just six months ago, when direct lending represented more than 56% of the market, with issuance peaking at €3.18 billion in Q3 2019.
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Use of proceeds
(M&A vs recap & refinancing)
Refinancing activity vanishes as M&A dominates unitranche volume in 2020
So far in 2020, refinancing has all but vanished, falling from a steady 28% in 2019 as the use of proceeds for all recorded unitranches were earmarked for acquisitions, LBOs, MBOs, SBOs and minority-stake acquisitions. Of the categories, secondary buyouts accounted for almost half of issuance in Q1 2020.
Number of unitranches vs unitranche volume
Number of direct lending deals fall from last year’s high
The number of direct lending deals slipped in Q1 2020 from its record performance in 2019, with volumes down 42% year on year to €2.49 billion across 76 deals. This is unsurprising given the state of the economy overall – these depressed volumes mirror, to varying degrees, declines recorded in markets outside the direct lending space.
As a proportion of the direct lending market, unitranche volume has decreased from recent highs, though the share (59%) is still within reasonable levels given historical figures.
Large cap vs mid-market unitrache
Number of deals fall behind 2018 levels
Both the large cap (above €150 million debt) and mid-market spaces have seen a marked reduction in direct lending deals. Collapsing from the excitingly high levels reached towards the end of last year, activity across the board is now more in line with weaker 2017 values.
2018 to Q1 2020 sub-regional unitranche distribution
UK leads in number of deals done, while France overtakes on value
France has asserted itself as the frontrunner in direct lending issuance. Despite completing only 11 deals – less than a quarter of the total – in Q1, the country contributed nearly half of the aggregate value of all deals done in Western Europe. The UK had the highest number of deals (14) but slipped into second in value terms with 30% of issuance.
2018-Q1 2020
Healthcare sector runs away with direct lending issuance, overtaking former leader TMT
The healthcare sector has seen direct lending volumes explode as a proportion of total issuance, ending Q1 2020 with 31% of the total across 13 deals. In contrast, TMT, for many years the market’s frontrunner, has taken a back seat. It contributed just 4% of issuance across 9 deals, down from 18% in 2019.
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European Direct Lending Perspectives
Q1 2020
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Paul Hastings is a market leader in global private credit funds, advising on the structuring and implementation of cross-border and domestic transactions
For further information, please contact dialaminott@paulhastings.com
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