Q4 2020
Direct lending news in brief
Selected stories from Creditflux and Debtwire
Creditflux and Debtwire report on the biggest stories in the world of direct lending. Breaking exclusives on funds, launches, strategies and hires make these must-have services for a market hungry for news. The stories here are just a small sample of what is on offer
Direct lending’s ready to blossom
European direct lending fundraising slumped year on year, with no final closes held in Q3. But market participants point out there is a more positive story not reflected in this dour picture.
The fundraising total is a big drop from Q3 2019, when Creditflux reported that five managers held final closes and raised €10.6 billion. These included mega-funds Alcentra European Direct Lending Fund III (€5.5 billion), Pemberton European Mid-Market Debt Fund II (€3.2 billion) and Barings European Private Loan Fund II (€1.5 billion).
But Creditflux’s Funds Data reveals more managers held first closes in Q3 as they sought to deploy capital amid coronavirus volatility. Ten European direct lending funds amassed €10.12 billion in first closes, including: Ares’ fifth fund in its series Ares Capital V (€6.97 billion); Pemberton Asset Management’s inaugural senior loan fund (€900 million); Capital Four’s Private Debt III – Senior Lending (€500 million); Capza’s 5 Flex Equity (€450 million); and Artemid Senior Loan III (€400 million). In Q3 2019, seven funds held first closes but brought only one-tenth of the capital (€1.03 billion) to the market.
Many fund managers originally outlined final closes in Q1 and early Q2 but pushed these back to the end of the year. This was to accommodate investors wishing to wait for greater visibility on COVID-19.
Despite the low headline figures, sources say fundraising remains healthy and highlight that declining volume is a feature across all alternative markets.
CIC launches CLO-like loan fund
Crédit Industriel et Commercial (CIC) is looking to raise €300 million for a European senior debt fund. CIC European Large Cap Senior Debt Fund 2 will invest in PE-backed loans to companies with €100 million-€500 million EBITDA.
The fund follows a similar strategy to its predecessor, CIC ELCF 1, which launched in 2017, also at €300 million, and which has invested in 80 companies. Given the emphasis on large-cap loans and granular portfolio composition, the fund’s asset pool is akin to that of a typical European CLO. Steve Dunn, head of private debt for CIC’s London branch, is lead portfolio manager.
In addition, CIC says it has so far raised €340 million for CIC Mezzanine & Unitranche Financing 5, a vehicle launched late last year. It will invest in French companies and target mezzanine and unitranche debt.
Alantra buys stake in French direct lender
Alantra has acquired a 49% stake in European mezzanine and junior private debt manager Indigo Capital, which the firm says will consolidate its position in the French sponsorless market and accelerate its growth in Italy and other European geographies. Paris-based Indigo invests in SMEs in Europe with revenue between €20 million-€300 million through private bonds and preferred equity.
Alantra says the acquisition will strengthen its bid to become a “leading pan-European diversified asset manager” through direct investments, fund of funds, co-investments and secondaries. It plans to offer these solutions across PE, active funds, private debt, infrastructure, real estate and venture capital. The move follows Alantra’s incorporation of Grupo Mutua as its strategic partner.
Club deals lose ground as banks turn up caution
With M&A having picked up pace in H2 2020, one thing is becoming clear – bank clubs are scarcer. Direct lenders have gained ground, particularly on speed of execution, with many PE firms pre-empting deals and tapping funds for financing to get ahead of competitors in an overheated market. While funds have been blazing ahead to deploy, banks have proceeded with caution, picking their battles carefully and favouring the more lucrative underwriting model.
Another sticking point for banks this year has been COVID-adjusted or forward-looking 2021 EBITDA calculations, neither of which have gone down well at banks’ credit committees. Add to that the fact many banks have suffered in the pandemic, making them more hesitant in the senior club arena. Regional differences are emerging, however, with banks in the DACH region continuing to offer strong competition.
“It seems it’s the case everywhere in Europe that banks are retreating from the mid-market except for Germany, where they’re basically doing unitranches. They’re not on every deal but prove extremely aggressive for the assets they know and like. It’s really annoying for us actually,” said a Germany-based direct lender.
“In some cases, you’re seeing bank clubs having a bit of a comeback, but it’s not on the straightforward deals. Ultimately, we will see a decline in clubs and a shift to unitranche, but on certain deals the senior option is attractive,” said a Netherlands-based banker.
Mushroom growers CNC gets big backing
Sun European’s acquisition of CNC Holdings, a Dutch mushroom substrate business, was backed by a circa €75 million unitranche provided by Crescent Capital, according to two sources familiar with the situation.
Though the deal was marketed off around €20 million by sell-side adviser EY, CNC’s 2019 EBITDA was closer to €16 million, with €91 million of revenue. Financiers were considering leverage around or below 4x. Pricing on the debt is around Euribor+ 650 bps, one of the sources added.
CNC Holding comprises five companies that focus on production and transport of substrates for growing mushrooms, with locations across the Netherlands and Poland. The businesses range from CNC Exotic Mushrooms B.V., which provides substrates for edible mushrooms grown on wood or compost, to AMCO B.V., which transports straw-rich horse manure. There were questions throughout the process around the co-operative ownership, but the asset was viewed as strong within the substrates industry.
EQT lines up debt funds for SaaS acquisition
EQT is finalising a group of private debt providers to part-finance its buyout of German software-as-a-service (SaaS) provider thinkproject, which focuses on construction intelligence. The sponsor has lined up Bridgepoint Credit, Goldman Sachs PIA, Northleaf, Park Square/SMBC JV and Partners Group to provide a unitranche and acquisition facility package, according to four sources familiar with the situation.
The financing is expected to comprise a €177.5 million unitranche and a €60 million acquisition facility provided by the funds, as well as a small RCF from Commerzbank, one of the sources said.
The competitive financing process saw funds pitch as high as 7x and banks 5x-5.5x. EQT acquired a majority stake in thinkproject for an EV multiple not far from 30x. The asset was marketed off €30 million EBITDA including new business, or €24 million without.
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European Direct Lending Perspectives
Q4 2020
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