The Deloitte Alternative Lender Deal Tracker Spring 2019

Direct Lenders on path to disruption with gorilla deals

The Deloitte Alternative Lender Deal Tracker now covers 67 leading Alternative Lenders, with whom we track 1753 primary mid-market deals across Europe.

The eighteenth issue covers data up to Q4 2018 which witnessed 98 deals completing that quarter. For the full year 416 new deals were recorded across the EU, representing a 9% increase in deal flow on a last 12 months basis in comparison with the previous year.

Key highlights

  • 416 new deals were recorded throughout 2018 across the EU, representing a 9% increase in deal flow on a last 12 months basis in comparison with the previous year.
  • While Direct Lenders are targeting more deals, the rate of growth is slowing potentially more cautious behaviour from funds and sponsors. 
  • Fund raising continues apace with direct lenders increasingly chasing gorilla deals as could be witnessed lately with the £1bn refinancing provided by Ares for Daisy Group, the software services business, and to date the largest ever European direct lending deal. 
  • With size comes infrastructure, and it can’t be long before we see funds adopting a bank style model, hiring syndications teams, underwriting even bigger deals and syndicating part of the debt.
  • Default rates for leveraged loans are historically low (below 1% p.a.) but might be clouded by the prevalence of loose / no covenants in the majority of transactions that could result in covenant breaches only very late (or even too late) in the lifecycle of borrowers.
  • When turning to Belgium we notice that against the context of global uncertainty, abundance of competitively priced liquidity provided by 4 domestic banks to the broad local mid-market, direct lending remains in most cases uncompetitive for the time being.
  • This being said, in Q1 2019 nevertheless the largest ever direct lending deal in Belgium was completed supporting the acquisition of Combell by Hg showcasing clearly how the direct lending product can be competitive and offer value to borrowers and its shareholders in the current market context
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