Debtwire direct lending data

Q3 2020

Data analysis

Research by

Ben Watson

Market analyst Debtwire Par

Direct lending issuance jumps up in September following a lacklustre pandemic performance

Mid-market volume vs number of deals

Mid-market watchers let down by direct lending

When comparing overall mid-market activity (€14 billion from 472 deals) with direct lending-specific mid-market activity (€2.8 billion from 211 deals) over the first nine months, the picture looks underwhelming for the direct lending sector. The mid-market segment has performed relatively well during the pandemic, with firms still able to access capital. However, direct lending has dropped from an average of 42% of activity last year to just 20% in 2020 so far.

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Use of proceeds

M&A drought spotlights refinancing

There has been a significant increase in the proportion of refinancing versus new money unitranche issuance in light of waning M&A activity. Recapitalisations and refinancings account for 44% of unitranches year-to-date, while the respective figure for overall direct lending activity mirrors the figure at 42%.

Number of unitranches vs unitranche volume

September figures beckon slow return to pre-pandemic levels

The number of direct lending deals issued in September rebounded to pre-lockdown levels, with 34 deals completed, resulting in €1.6 billion in total debt raised. Year-to-date, direct lending activity is, quite understandably, down on last year’s figures, parrying hopes that the market could jump on issuance when banks were forced to close in the pandemic’s wake. The total for the first nine months of the year came in at €10.55 billion, versus last year’s €16.6 billion over the same period. The spike in volume in September is aided by a significant rise in non-unitranche structures, such as senior, super senior and junior debt. Unitranches, which had been a cornerstone in the rise of direct lending, have noticeably been trending downwards as a proportion of direct lending activity, averaging 53% of issuance year-to-date and just 47% in the last quarter. This is down from an average of 63% in 2018 and 65% in 2019.

Large cap vs mid-market unitrache

June anomaly in otherwise unremarkable year

The number of Western European borrowers issuing unitranches spiked to 47 in March, preceding the wave of national lockdowns that spread across the region. Volumes have remained relatively stable since, save for June issuance in which UK insurance broker Ardonagh raised a £1.575 billion unitranche, skewing the data significantly. Overall, €4.87 billion was raised across 19 unitranches for large cap (above €150 million debt) borrowers, while mid-market borrowers raised €2 billion from 135 deals.

Sub-regional unitranche distribution

UK unseats continental competitors

The UK has continued to gain market share of overall direct lending issuance, having increased by 5% in 2019 and again by the same amount in the first nine months of this year, growing to 44% with €4.6 billion. France remains securely in second place at 22% of issuance, while the other regions have largely contracted.

Sectoral issuance

Financial sector takes the cake

The sector graph is markedly different from previous years, having remained relatively static prior to 2020. The alteration is amplified by the lower size overall of the direct lending market, as well as the jumbo Ardonagh deal, contributing to a swollen financial services sector. Surprisingly, even without the landmark deal, financial services issuance has become the leading sector, with 20% of issuance. TMT has been displaced from the top seat, while financial services also overtook the volume of deals issued by both healthcare firms and industrial & chemicals companies.

League tables

Interview with Capital Four’s Laust Johnsen

European Direct Lending Perspectives

Q3 2020

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