Q4 2020
Editor’s letter
Direct lenders will dance as long as the music plays
Mariana Valle
Head of leveraged finance and direct lending coverage, co-deputy editor, Europe
Welcome to the ninth edition of the Creditflux and Debtwire European Direct Lending Perspectives (EDLP). In this issue, we look at how direct lenders exceeded early-2020 expectations and bounced back with aplomb to set themselves up for a strong 2021
The direct lending market finished 2020 with a bang, defying all early-year expectations when the pandemic began and debt providers became nervous about deploying. Fast forward several months, and many funds will tell you Q4 was their best-ever quarter.
Direct lending issuance totalled €15.8 billion in 2020, a 13% decline from 2019’s €18.2 billion. But issuance in the final quarter was strong, reaching €4.13 billion across 124 deals, according to Debtwire Par data.
Fast forward several months, and many funds will tell you Q4 was their best-ever quarter.
Despite the wobbles of covenant problems in portfolios, some level of debt restructurings and intermittent periods of economic instability caused by recurring national lockdowns, our survey reveals that the market expects 2021 to be a good year for direct lending. Almost 70% of respondents believe deployment will increase this year.
Sporadic lockdowns in the UK and continental Europe, difficulties over vaccine deployment and emerging variants of COVID-19 are certainly factors that could hamper activity in 2021, but direct lenders will continue to dance as long as the music plays.
M&A in Q1 2021 is proving fruitful so far, which is likely to lead to healthy issuance in the early part of this year. Inflated asset prices are also making way for more pre-emptive approaches from private equity (PE) firms, which in turn is creating more opportunities for direct lenders, given their ability to act quickly and quietly.
In this edition, we look back over 2020 to draw expectations for the year ahead. You will find the usual deal data, league tables, fundraising data and news, as well as features on pent-up demand and how those in the direct lending market are preparing to brush themselves off and bounce back better than ever.
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Private debt providers are, in fact, so upbeat that 59% of respondents to our yearly survey said they expect coronavirus disruption to have only a minimal impact on their fundraising efforts in 2021, with another 32% saying they expect no, or indeed, a positive impact. This is in stark contrast to last year’s fundraising figures, when just €16 billion was raised – a 56% year-on-year drop, according to Debtwire Funds Data. But 2021 is likely to make up for lost time, with 44% of respondents expecting €20-30 billion to be raised this year, another 22% expecting €30-40 billion and a further 22% anticipating €40-50 billion.
European Direct Lending Perspectives
Q4 2020
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