Deloitte Alternative Lender Deal Tracker: Spring 2020

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Direct lender deployment

Deloitte Alternative Lender Deal Tracker: Spring 2020      

Following a strong year in 2019 & start of 2020 with increased activity in both the Netherlands and Belgium, direct lenders have taken a step back to see how the impact of COVID-19 unfolds. Current pandemic will be the first real test for the direct lender asset class! Read more about it in the Spring ALDT 2020.

Deloitte Alternative Lender Deal Tracker: Spring 2020

  • This issue covers data for 2019 and includes 484 Alternative Lender deals. Whilst this represents a 13% increase in the number of deals from 2018, the 292 deals in H2 2019 represents a 52% increase on H1 2019. Due to COVID-19, this trend is unlikely to continue in H1 2020.
  • In the previous edition of the Alternative Lender Deal Tracker, it would have been difficult to believe that the next shock to the global economy would come in the form of the COVID-19 virus. While almost all sectors of the economy have been impacted, tourism and transport have been hit especially hard. Compounding the scale of the economic impact is that almost all nations are facing a severe shock and as a result are less able to help one another than in previous crises.
  • Policymakers are rushing to ensure that the inevitable recessionary hit to economic activity is controlled and short-lived, avoiding the scenario of a full-blown liquidity crisis in which businesses, banks and households run out of cash. It seems obvious that we are in for a bout of volatility and weaker activity. However, the big unknown is timing. So far the response has been credible, with over $7 trillion of stimulus from governments and central banks around the world, but will it be enough to stem a health emergency turning into a more protracted economic crisis.
  • The move by investors out of equities and into the ‘safe haven’ of government bonds and gold in the last fortnight attests to the severity of this pandemic. The 12th March will go down in history when the longest stock market bull run in history was officially marked over, with COVID-19 ending 11 years of gains made since the Global Financial Crisis. As of the 23rd March, the FTSE and Dow Jones indices were down 34% and 35% year to date respectively.
  • The leveraged loan markets have not been immune to the selloff across equity and commodity markets, with dramatic corrections mirrored in the secondary leveraged loan markets in the US and Europe. In the year to the 24th March 2020, the US and European Leveraged Loan Indices were down 21% and 19% respectively following a sustained period of losses — dramatic falls for what is usually considered a less-volatile market hovering around par level.
  • Pre-COVID19, direct lender presence however continued to grow in The Netherlands and Belgium with a total of 48 Alternative Lender deals in 2019, relative to 28 deals in the same period in 2018
    • The majority of deals in the Benelux region in 2019 were M&A related (78%). This is higher compared to the rest of Europe including the UK where 68% of transactions are M&A related. The difference is largely attributed to the increasing presence of direct lenders in the Benelux leveraged loan market.
  • Going forward, alternative lenders will likely take ownership of a number of more cyclical assets. As a result, LPs should keep a close eye on accounting valuations to spot any hidden losses in direct lenders portfolios, as there is no market-to-market value for illiquid direct lending debt

Deloitte Alternative Lender Deal Tracker: Spring 2020

Background

Our Debt Advisory team has been in active dialogue with the leading European Alternative Lenders to set up a quarterly database, which monitors the primary European deal activity involving these lenders. 55 alternative debt funds currently participate in the Deloitte Alternative Lender Deal Tracker and the results are released to interested parties on a quarterly basis in a public version of the tracker.

 
 

Debt & Capital Advisory

The Debt and Capital Advisory team is an integral part of Deloitte's Financial Advisory practice, providing independent advice and world class execution across the full spectrum of debt markets through the firm's global network.

 
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