The audience welcomed the positive message from keynote speaker Lord Digby Jones, who was confident Europe would not snub UK exports with high tariffs for fear of losing out on UK imports. In addition he listed the potential for opportunities of being outside of Europe going forwards, suggesting Brexit won’t spell doom for UK businesses and leave healthy areas for financing to continue in London.

There are still hurdles to overcome with issues around passporting and visas for qualified workers alongside addressing the “stifling” environment created by regulations in London. However his summary of opportunity rather than chaos hit a welcome note with lenders in the room battling in a highly competitive market that is squeezing them on pricing while demanding ever more debt.

One theme that emerged was the mispricing of risk in the middle market. Competition from banks alongside pressure from sponsors and debt advisers is driving up leverage and lowering pricing, while pushing funds into ever higher risk positions in debt structures.

The panel discussions ranged from overall trends for 2017, direct lenders targeting big credits, bank and fund tie-ups and private equity perspectives on the market.

One fund highlighted the pressure it had been put under to finance a credit by providing unitranche debt that would be junior to an ABL holding senior rights to all the assets at the usual 6-7% unitranche cost instead of more reasonable mid teen margins.

Tie-ups also revealed concerns, despite growing in popularity with both funds and banks. Debt is often labelled as senior and super senior, with funds taking the 75-85% large, senior piece and banks providing the extra super senior slice on top. Panellists argued that the attachment points are creeping up, with super senior pieces reaching 30% of unitranches in some cases. Funds’ assurance of secure debt in the synthetic unitranche is being eroded as they lose parts of their control on deals without being paid more.

Yet from a private equity perspective, panellists made clear that flexibility is one of the most desirable traits in a lender. Offering debt in addition to ABLs or participating in synthetic unitranches on top of also offering senior, stretched senior and unitranche, will get sponsors’ attention. Yet the need to be flexible also includes taking on more risk.

Joelle Jefferis Senior Reporter Debtwire

Joelle Jefferis is a Senior reporter at Debtwire Europe covering leveraged buyouts and refinancing in the mid-market space in the UK and Benelux regions as well as large cap syndication processes. Previously Joelle focused on international taxation and transfer pricing. Joelle has a BA in Social Anthropology with International Study from the University of Manchester.