The big stretch

Direct lenders have become an equal alternative to bank lending in Europe, taking close to half of all deal flow in 2018.

Direct lending is no longer just a middle market phenomenon, with some funds providing financing packages towards the billion mark. It has also expanded beyond the leveraged buyout market, with direct lenders going directly to corporates to fulfil their financing needs.

In the sponsor-driven arena, direct lenders are stealing territory from banks according to a new report published by Debtwire and Creditflux. In 2018, unitranche facilities accounted for 41% of all deals done in Europe in the mid market in terms of volume, a slight increase from 40% in 2017. But far outweighing 2016 when just 28% of deals were structured in this way, according to Debtwire Par.

And this growth is not just driven by the more mature UK direct lending market. For the first time, the number of unitranche deals in the DACH region outstripped bank deals last year, at 52%, while France also bowed to unitranche, at 54% compared to 46% of bank deals. 

Chart: Data shows that the number of unitranche deals in Germany, Austria and Switzerland in 2018 outstripped bank deals for the the first time. 

With the growth of unitranche deals, and sizable ones at that, direct lenders are also no longer solely mid market loan investors. With managers  raising ever larger funds, they are becoming a real alternative on large cap deals – almost taking candy from the mouths of CLOs. 2019 might be an even bigger year for large cap unitranche, with Ares Management clinching a rumoured £1 billion (€1.2 billion) private deal  for UK IT & communication company Daisy, and GSO Capital Partners offering a whopping €1.5 billion unitranche staple to bidders of Evonik’s methacrylate business, as reported by Debtwire.

Chart: In the second half of 2018, 16 unitranche deals were completed in the large-cap market, totalling over €2 billion

The second half of 2018 is a clear sign of how direct lenders can deploy significant firepower in the large cap space, with over €2 billion flowing out. Proportionally this still accounts for a small chunk of direct lending deals, with the  €2 billion being deployed in 16 deals, compared to the 82 unitranches provided in the mid-market space over the same time frame.

The Direct Lending Perspectives report was jointly published in March 2019 by Debtwire & Creditflux in partnership with Paul Hastings.

Joelle Jefferis Reporter Debtwire

Joelle Jefferis is a 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.

Joelle Jefferis Reporter Debtwire

Joelle Jefferis is a 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.

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