Deloitte Alternative Lender Deal Tracker – Q1 2017

The race for GDP growth: Europe closes in on US Deloitte Alternative Lender Deal Tracker Q1 2017 For future copies of this publication, please sign-up via our link at www.deloitte.co.uk/dealtracker Financial Advisory This issue covers data for the first quarter of 2017 and includes 79 Alternative Lender deals, representing an increase of 7% in deal flow on a last 12 months basis in comparison with the previous year.

Contents

Deloitte Alternative Lender Deal Tracker 4

Leveraged loan mid-market trends for Direct Lenders 6

Direct Lenders facilitate the expansion of Ansett Aviation Training 8

Alternative Lender Deal Tracker Q1 2017 10

Alternative Lending in action: Spotlight on the Italian market 16

Direct Lending fundraising 20

Recent Direct Lending moves 26

Deloitte’s CFO survey 28

Insights into the European Alternative Lending Market 32

Deloitte Debt and Capital Advisory 45

Deloitte Alternative Lender Deal Tracker

Welcome to the fifteenth issue of the Deloitte Alternative Lender Deal Tracker which now covers 59 leading Alternative Lenders, with whom Deloitte is tracking primary mid-market deals across Europe. The number of deals reported on has increased to 1011 transactions over the past 18 quarters. This issue covers data for the first quarter of 2017 and includes 79 Alternative Lender deals, representing an increase of 7% in deal flow on a last 12 months (LTM) basis compared with prior year.

Business confidence remains volatile. The first quarter results from the Deloitte Chief Financial Officers’ survey showed that sentiment has continued its positive momentum despite looming uncertainties related to the continued challenges around the strength of the Swiss Franc and its implications for trade. The Swiss Increase in deal National Bank continues to intervene in the markets to counter fight an excessive 7% ﬂow year-on-year appreciation of the currency in times of increased uncertainty and market volatility in which the Swiss Franc is regarded as a safe haven.

Internationally, equity markets at are at an all-time high, with the MSCI All- Country World Index, an index of 46 stock markets up 11.4% YTD and reaching its highest ever level in June this year. The global economy is accelerating on the back of stronger than forecast first-quarter earnings results and a reduction in unemployment. In the race for growth, Europe is gaining strength and is closing in on the US, with GDP across the Eurozone increasing by 0.6% quarter-on-quarter during the first three months of 2017, and 1.9% on prior year versus 2.0% for the Deals completed US (according to Eurostat and the U.S. Bureau of Economic Analysis respectively). 79

European loan markets are similarly positive, with record levels of dry powder and high levels of “cov-lite” issuance. In May, the ECB revised a number of its prior guidelines on leveraged transactions expected to be implemented from November, allowing leverage multiples to be based on adjusted, rather than unadjusted, EBITDA; whilst these changes softened the proposals contained in prior guidance, we anticipate that their implementation will benefit Alternative Lenders.

5 © Deloitte Alternative Capital Solutions Alternative Lender Deal Tracker Q1 2017 | Deloitte Alternative Lender Deal Tracker

Whilst the prevalence of funds in the market is not new, their Q1 2017 deals completed penetration across Europe has increased significantly albeit at a 17 lower pace in the Swiss market. Despite an increasing interest of 7 funds, banks and the debt capital market continue to hold the lion’s share in the low interest rate environment.

In this issue we focus on Alternative Lending in Italy, which 30 historically has been a jurisdiction reserved for banks, 25 predominantly due to regulation. Post crisis however, with local banks impacted by capital constraints and a reduction in the valuation of assets on their balance sheets, Alternative Lenders stepped in to fill the void. Since its inception in 2012, the Italian Alternative Lending market has been mainly characterized by bonds or similar securities issued by unlisted companies; however, there has also been a proliferation of debt funds, with a growing UK France Germany Other European interest by non-Italian managers.

In terms of fundraising, 2017 has been a bumper start for Europe where in Q1 2017 we saw USD 9.1bn of closings, nearly twice the value of all 2016 fundraising in Europe. This is very positive for private equity investors who themselves are enjoying a strong Q1 headline ﬁgures (last 12 months) fundraising environment which hit an 8-year high in Europe of EUR Q1 2016. UK deal count 98 74.5bn in 2016 (LTM) Rest of Europe deal count 171 Despite short term uncertainty, the market fundamentals remain strong for continued growth in the Direct Lending markets. Q1 UK deal count 110 2017 (LTM) Rest of Europe deal count 178

Floris Hovingh John Feigl Partner – Head of Alternative Head of Debt and Rating Capital Solutions Advisory Switzerland Tel: +44 (0) 20 7007 4754 Tel: +41 (0) 582 796 633 E-mail: [email protected] E-mail: [email protected] © Deloitte Alternative Capital Solutions 6 Alternative Lender Deal Tracker Q1 2017 | Leveraged loan mid-market trends for Direct Lenders

Leveraged loan mid-market trends for Direct Lenders

Global equity markets at are at an all-time A recent study by UBS showed that after As a result, loan markets remain highly high, with the MSCI All-Country World Index, six years of disappointing earnings in competitive, with supply still massively an index of 46 stock markets, up 11.4% YTD Europe, estimates in the region had been underserved by demand. Covenant and reaching its highest ever level in June. In revised up for only the second time in a lite loans are now the norm, accounting search for yield, investors are increasingly decade. for 72% of issuance in Europe in the venturing into riskier assets as confidence YTD period as per LCD. Furthermore, grows. This year emerging market and euro Growth in Europe is gaining portability features which started life in area equities have easily outperformed last momentum, with GDP increasing by 0.6% the investment grade bond market, and year’s stars, US and UK equities. The value of quarter-on-quarter during the first three subsequently filtered through into the previously unloved assets, such as Greek months of 2017, and by 1.9% on prior year high yield market have now firmly landed equities and euro area banks, have risen by versus 2.0% for the US according to the in the Direct Lending mid-market. as much as 20% since January. U.S. Bureau of Economic Analysis and Eurostat. Some commentators now expect that Europe will grow as fast as the US if not faster this year, which is a big surprise. With strong liquidity, it is also no surprise Why are investors so assured? Part of the that the average pro forma first lien story is that on the whole, the global Despite this improvement in economic leverage multiple for LBO’s tracked by LCD economy is accelerating at rather a faster activity, and with increasing prompts from in Europe has increased to 4.9x. This is pace than expected, with world trade some European politicians to pull the plug reflected in the rolling 3 month average flows exhibiting growth of 1.4% in Q1. on monetary stimulus, the ECB has purchase price multiple, which at the end signalled that it is not yet ready to do so. of March stood at 10.5x, up by over a First-quarter earnings results show that this For now, deposit rates at the ECB remain quarter of a turn versus prior year. recovery is feeding through to profits. More negative and asset purchases will continue In addition, LCD reports that yields for than 70% of US and European companies at a monthly rate of €60bn. This highlights single B credits fell c.60bps to 5.64% in which have so far reported have announced increasing divergence between the US and Q1, and defaults remain at a low point of stronger-than-expected earnings. European interest rate environment, 2.1% in May, down from 2.8% in the Unemployment in the US and Europe is where rates increased by 25bps in March 12-month period ended April. now at its lowest level in 16 and 8 years to 100bps and market commentators respectively. anticipate further rises this year.

6 © Deloitte Alternative Capital Solutions Alternative Lender Deal Tracker Q1 2017 | Leveraged loan mid-market trends for Direct Lenders

As a result, participants have looked to do As a sign of confidence in the Direct more deals off market or have sought to Lending market and evidence that increase their exposure in continental fundraising is lumpy there has been Against these strong market dynamics, the Europe, similar to that of the Direct Lenders. an exponential rebound in Q1 2017 ECB issued its final guidelines on leveraged European fundraising (US$9.1bn) lending in Europe prior to a November which is nearly twice the amount implementation. The new guidelines raised in all of 2016 (US$5.4bn). restrict banks completing deals at over 6x adjusted leverage and broadly align Indeed many European countries are European and US regulation. Whilst these exploring options to increase their guidelines have been relaxed somewhat attractiveness to private equity managers; versus draft guidance issued late last year, more recently Italy, for example, has they do not apply to other non-bank and introduced a series of reforms which will Across continental Europe we have seen Alternative Lending institutions, which is see tax on carried interest reduce from an uptick in Q1 2017 of sponsor-less likely to add further weight towards an 43% to 26%. companies using Direct Lending (31% of increasingly fund led environment. total transactions). Deloitte has also experienced in 2017 an increased interest from family and founder owned businesses looking for growth capital with In 2017 we have seen more multi-billion the objective to minimise the need for Notwithstanding the above, the providers of Euro funds being raised such as Alcentra equity funding. These corporates are leveraged loans and those requiring them with €2.2bn and Hayfin with over €3.5bn. waking up to the new world sitting in are going through a period of adjustment. On the other hand some managers are between bank debt and private equity A number of private equity and credit retreating from the Direct Lending market money and start to see the advantages of platforms have in recent months reduced entirely. Avenue Capital is the first using alternative capital as a tool for their exposure to the UK in one form or established European Direct Lender to transformational growth, which was not another. This is more a reaction to an decide against raising a second fund with within reach previously. increasingly competitive market than a the firm opting to concentrate on its larger reaction to Brexit. On the private equity distressed debt and special situations Broadly speaking, whilst some nuances side, a number of participants view the UK business in Europe. are evident, the market in Europe remains as overserved with too much dry powder very favourable for borrowers, driven by competing for too few deals, leading to high a continually buoyant fundraising valuation multiples. environment, as experienced in Q1 2017.

Direct Lenders facilitate the expansion of Ansett Aviation Training

Ansett Aviation Training, headquartered in Australia, is one of the world’s leading independent providers of aviation training services. In May 2016 the company opened its second facility in Taiwan and is currently developing the third facility in Italy using funds provided by Direct Lenders. The CEO of Ansett Aviation Training, David Garside, discusses the attractions of this financing source.

Deloitte Debt Advisory advised Ansett In May 2016 the company opened its Currently 82 aircraft of this specific type Aviation Training (“AAT”), the world’s leading second facility in Taiwan and is currently are in-service worldwide of which 49 are independent provider of flight simulation developing the third facility at the Milan in Europe. To date all the required training services, on raising growth debt capital to Malpensa Airport in Italy for which Deloitte for flying the CL-415 has been done in enable further expansion for the business was approached to source the debt the aircraft itself due to the absence of a by entering into the European market. financing required. The centre will include simulator which led to a number of training a CL-415 simulator, the first of its kind and related accidents. The simulator will be The company is backed by CHAMP key driver of the business case, providing certified by the European Aviation Safety Ventures, a leading Australian private the company with the only available Agency (EASA) and will secure a captive equity investor, who are focused on simulator for this type of firefighting aircraft market for AAT as each operator will be expanding the business globally. in the world, developed by Bombardier. required to use the CL-415 simulator.

8 © Deloitte Alternative Capital Solutions Alternative Lender Deal Tracker Q1 2017 | Direct Lenders facilitate the expansion of Ansett Aviation Training

As David Garside, CEO of AAT explains, “We were looking for ‘smart money’ – people who have “Securing financing for the facility in Italy was only the first phase of a much larger the ability and appetite to understand and support our growth strategy. We were looking for ‘smart longer-term growth plans, as well as what we want to money’ – people who have the ability and appetite to understand and support our achieve today.” longer-term growth plans, as well as what we want to achieve today”. Deloitte Debt Advisory’s Alternative Capital Solutions team advised the Company Ansett Aviation Training The transaction was complex given the on raising €10 million of committed debt AAT, headquartered in Australia, provides start-up nature of the Italian business finance and a €10 million uncommitted full-flight simulation services to pilots and and the requirement to ring-fence the accordion from a club of 2 Direct Lenders. operators of aircraft fleets and especially facilities within the Italian entity. Being Due to the local financing environment in focuses on niche aircrafts. As it is headquartered in Australia added another Italy the facilities were structured as a listed completely independent from any party level of logistical difficulty, and David senior secured bond at the Vienna Stock the company has established a strong stresses the need to carefully orchestrate Exchange. The new finance will enable the position in the global market for amongst the timezones of all involved parties in company to construct the facility in Italy, others the RJ-Avro/Bae-146, King-Air 200, order to keep momentum going and get which will initially have 4 flight simulators Embraer 120 and A320 aircraft. the timing of investment decisions right. with additional capacity for further growth. David continues, “Alternative Lending was a route we weren’t hugely familiar Summarising the outcome, David says, with, and the Deloitte team introduced “We have a funding arrangement in place us to a much broader network that could now that we simply wouldn’t have been potentially work with us, as well as helping able to come up with ourselves – and with us to think creatively about the solutions partners that want to come on the journey which would suit. To others considering this with us”. route, I would say keep yourselves open to David Garside any scenario, and don’t shut it down just CEO – Ansett Aviation Training because you don’t initially understand it”.

Alternative Lender Deal Tracker Q1 2017

10 © Deloitte Alternative Capital Solutions Alternative Lender Deal Tracker Q1 2017 | Alternative Lender Deal Tracker Q1 2017

Alternative Lenders continue to increase their deal flow…

Alternative Lender Deal Tracker Currently covers 59 leading Alternative Lenders. Only primary mid-market UK and European deals are included in the survey.

Deals UK Germany 100 France Other European 83 80 79 72 71 Data in the Alternative Deal Tracker is 70 70 68 65 65 retrospectively updated for any new 62 participants 55 58 60

41 41 40 34 35

22 20 399 20 UK deals completed

0 Q4/12 Q1/13 Q2/13 Q3/13 Q4/13 Q1/14 Q2/14 Q3/14 Q4/14 Q1/15 Q2/15 Q3/15 Q4/15 Q1/16 Q2/16 Q3/16 Q4/16 Q1/17

Deals done by each survey participant (Last 12 months) UK Rest of Europe

40 612 Euro deals completed

30 completed 5 or more 44% deals in the last 12 months 20 survey participants completed 10 or 9 more deals in the 1011 last 12 months 10 Total deals completed

0 1357911131517192123252729313335373941434547495153

Total deals across industries (Last 12 months) Within the UK the TMT industry has been the dominant …across Europe user of Alternative Lending with 19% followed by Business, Infrastructure & Professional Services with 18%.

13% and across industries… 19% 3%

5% Total deals Other across Europe European In the last 18 quarters 24% 6% UK 1011 (399 UK and 612 18% other European) UK 7% mid-market deals are Total 39% recorded in Europe Deals Germany 8% 11% 11% 10%

France 7 Technology, Media & Telecommunications 19 1 26% Consumer Goods 11 Healthcare & Life Sciences Business, Infrastructure & Professional Services Leisure Manufacturing 14 Retail 8 Financial Services 13 Human Capital 399 16 50 Other 108 12% 13 16% 1 2% 4% 7 262 6 6% 1 Rest of 15%

1 6% Europe 34

2 34 11% 1 14%

14% In the rest of Europe there are 5 main industries: 3 Business, Infrastructure & Professional Services, Healthcare, TMT, Manufacturing and Consumer Goods. UK France Germany Other European 12 © Deloitte Alternative Capital Solutions Alternative Lender Deal Tracker Q1 2017 | Alternative Lender Deal Tracker Q1 2017

…providing bespoke structures for mainly “event financing” situations

Deal purpose (Last 12 months) The majority of the deals are M&A related, with 43% of the UK and Euro deals being used to fund a buy out. Of the 288 deals in the last 12 months, 65 deals did not involve a private equity sponsor.

12% 2% LBO 8%

Bolt on M&A 25% Dividend recap 24% 43%

Reﬁnancing Rest of UK 55% Growth capital Europe of transactions involved in M&A 44% 17% 15%

10%

Structures (Last 12 months) Unitranche is the dominant structure, with 52% of UK transactions whilst senior structure is more dominant in Europe with 40%. Subordinate structures represent only 20% of the transactions.

1% 2% 5% Senior 4% 7%

Unitranche 8% 30% 8%

Second lien 4% 40% Mezzanine 80% Rest of UK ﬁrst lien PIK Europe

Other Alternative Lenders are mainly competing with banks, as 80% of the transactions are *For the purpose of the deal tracker, we classify senior only structured as a ﬁrst lien structure deals with pricing L + 650bps (Senior /Unitranche). or above as unitranche. 52% 39% Pricing below this hurdle is classiﬁed as senior debt.

They become more prominent in all European countries…

Cumulative number of deals per country The number of deals is increasing at different rates in various European countries. The graphs below show countries which as of Q1 2017 have completed 5 or more deals.

Largest geographic markets for Alternative Lenders Other European countries

400 40

300 30

200 20

100 10

0 0 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 12 13 13 13 13 14 14 14 14 15 15 15 15 16 16 16 16 17 12 13 13 13 13 14 14 14 14 15 15 15 15 16 16 16 16 17 France Germany UK Austria Ireland Italy Poland Spain Switzerland

Benelux Nordics

60 20

18 50 16

14 40 12 30 10

8 20 6

4 10 2 0 0 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 12 13 13 13 13 14 14 14 14 15 15 15 15 16 16 16 16 17 12 13 13 13 13 14 14 14 14 15 15 15 15 16 16 16 16 17 Belgium Luxembourg Netherlands Denmark Finland Norway Sweden

14 © Deloitte Alternative Capital Solutions Alternative Lender Deal Tracker Q1 2017 | Alternative Lender Deal Tracker Q1 2017

…with a steady growth in number of completed deals

Comparison of deals for the last three years on a LTM basis for selected European countries In all countries shown below, except Italy which completed a record number of deals in Q4 2014, the compound annual growth rate (CAGR) presented in the graphs over the two years has increased. UK. Germany France 120 35 80 2% 7% 3% 30 70 100

60 25 80 50 20

60 40 15 30 40 10 20 20 5 10

0 0 0 Q1 2015 LTM Q1 2016 LTM Q1 2017 LTM Q1 2015 LTM Q1 2016 LTM Q1 2017 LTM Q1 2015 LTM Q1 2016 LTM Q1 2017 LTM Netherlands Spain Italy 20 15 47% 14 45% -9% 12

15 10 10

8 10 6

5 4 5

0 0 0 Q1 2015 LTM Q1 2016 LTM Q1 2017 LTM Q1 2015 LTM Q1 2016 LTM Q1 2017 LTM Q1 2015 LTM Q1 2016 LTM Q1 2017 LTM

Q1 Q2 Q3 Q4 © Deloitte Alternative Capital Solutions 15 Alternative Lender Deal Tracker Q1 2017 | Alternative Lending in action: Spotlight on the Italian market

Alternative Lending in action: Spotlight on the Italian market

Andrea Giovanelli, Head of Debt Advisory Services Italy, shares his view on developments and opportunities in the Italian market.

Unlike other European countries, such as With this backdrop, over the past five years, Alternative Lenders UK and France, where Alternative Lenders the Italian Government has introduced To date, 17 Italian based investment funds have assumed a more prominent role measures aimed at increasing liquidity into have been operating in the private debt in the lending market year after year, the market. market in Italy. 10 of them purely invest in lending activity in Italy has been historically private debt, while the others finance private reserved to banks. These measures have included providing companies both through equity and debt. state guarantees in respect of newly issued There are a number of reasons for this liabilities of Italian banks; amending the A strong boost to the market is attributable including the inability of non-Italian lenders Bank of Italy regulation to enable non-Italian to the decision of Fondo Italiano di to lend directly to Italian borrowers due lenders to lend directly to Italian borrowers; Investimento (FII), the investment arm of to Bank of Italy regulation. However, in the and reducing complexity around bond the Italian Government, to set up a specific post-crisis period, the capacity of many issuance procedures for non-listed SMEs. private debt Fund of Funds (FoF) aimed banks to lend to relatively high-risk sectors, at investing in private debt investment such as SMEs, has been seriously impaired Since its inception in 2012, The Italian funds. On June 2016 the fund had collected by capital constraints and a strong Alternative Lending market has been mainly €380m. deterioration of the quality of their assets characterised by bonds or similar securities on their balance sheets. As a consequence, issued by unlisted companies, however, Despite the low margin environment, which Italian companies experienced a sharp there has also been a proliferation of debt can lead companies to prefer banks, it contraction in bank lending. funds, with an increasing interest shown seems that Alternative Lenders have started by foreign operators. to coexist with banks in the same financial

Cumulated amounts raised from Nov. 2012 to Dec. 2015: approx. €7.9bn

Jun 2012 Nov 2012 Feb 2013

L.D. 83/2012 (“Decreto Sviluppo”) First “mini-bond” on the Italian ExtraMOT PRO Settlement of new rules for the issuance market issued by Guala Closures Settlement of a trading platform of “mini-bond” for unlisted SMEs (€275 mln) dedicate to “mini-bond” in the Milan Stock Exchange

16 © Deloitte Alternative Capital Solutions Alternative Lender Deal Tracker Q1 2017 | Alternative Lending in action: Spotlight on the Italian market

Alternative lenders invested and collected amount, €m

700 632 600

500 383 378 €m 400 315 300 201 200 128 100

0 2014 2015 2015 Invested Amount Collected Amount

Source: Mercato italiano del private equity, venture capital e private debt 2016, AIFI system, offering long term and tailor Capital agrees: “Our financing solutions are Since 2012 there have been 292 issues, of made lending solutions for more complex tailored on the specific needs of the company which 245 were smaller than €50m, while situations. in order to complement the products offered the cumulated number of issuers counts by banks”. 104 SMEs and 118 medium and large Barbara Ellero, Investment Director at companies for a total of 222 firms that Anthilia Capital Partners, feels the role of Bonds issued bonds. private debt funds is not challenging banks: Until a recent change in legislation in 2016, “We are not competing with banks, I would Direct Lending was not allowed. As such, Cumulated issuance volumes have reached rather say our two roles are different and the development of the Alternative Lending €11.5bn, including €3.6bn in 2016. complementary. We intervene in particular market in Italy is mainly characterised moments, in which companies need medium- by bonds or similar securities issued by long term funds, in a both flexible and stable unlisted companies. way that banks can no longer provide”. Philippe Minard, Founding Partner at Emisys

2016: approx. €3.6bn

Jun 2014 Feb 2016 Dec 2016

L.D. 91/2014 L.D. 18/2016 L. 232/2016 (“Decreto Competitività”) Sets out the Direct Lending regime Introduction of Piani Individuali Subject to certain restriction, by EU alternative investment funds di Risparmio (P.I.R.) dedicated to insurance companies and (“AIFs”) to Italian borrowers individual retail investors securitisation vehicles can lend directly to companies © Deloitte Alternative Capital Solutions 17 Alternative Lender Deal Tracker Q1 2017 | Alternative Lending in action: Spotlight on the Italian market

The Issues Usually, there is no need to provide Bonds issued with a face value lower than guarantees like pledge on assets to borrow €50m represent the majority of total issues money from Alternative Lenders. “In some of the Italian market. Although one third of cases we may ask for channelling cash €11.5bn the market comprises greater than €100m flows or guarantees provided by holding Amount issued turnover businesses. companies. Our investment vehicle has also since 2012 the possibility to benefit from European €2.0bn The average maturity observed is 5.7y, but in Investment Fund (EIF) guarantee which 2016 the market has shown a growing use of covers 50% of the nominal value up to €5m”. < €50M so-called short term bond with a maturity of says Ellero. 12 months or below, issued to meet working capital needs. Usually, in the terms and conditions of the bond, Alternative Lenders require to include The average coupon began to decrease two some binding clause known as covenants years ago and the same trend has continued which are periodically monitored by lenders. 292 also in 2016, when it has reached 5.36%. Covenants must be complied with during the life time of the bond, otherwise it could Number of issues Despite a number of disclosure either be withdrawn or renegotiated at less since 2012 requirements, most companies were favorable terms. 245 attracted by listing. “Despite a number of < €50m disclosure requirement to be complied with Siciliano adds: “The set of covenants may to list the bonds on a regulated or a non- vary also depending on the rating; if any, regulated market, most companies were assigned to the issuer. However, the most attracted by listing. The recent introduction common covenants are negative pledge, of the Market Abuse Regulation poses to the financial covenants such as Net debt/ issuers of listed bonds additional obligations EBITDA – Net Debt/Equity and limitation on aimed at ensuring the integrity and a smooth dividends. (In addition, certain investors functioning of the markets. The issuers may require a specific use of proceeds by the of listed securities shall therefore adopt / issuer)”. amend their internal procedure to comply with MAR”. says Antonio Siciliano, Counsel at Legance.

18 © Deloitte Alternative Capital Solutions Alternative Lender Deal Tracker Q1 2017 | Alternative Lending in action: Spotlight on the Italian market

Issuer breakdown by turnover size class “We are not competing with banks, I would rather say our 10% 9% two roles are different and complementary. We intervene 9% in particular moments, in which companies need medium-long term funds, in a both flexible and stable 20% way that banks can no longer provide.”

IT 17%

Italian issuers have been quite The Alternative Lending market in Italy is heterogeneous. This is confirmed by Ellero: already a reality and it offers another option “Our portfolio, based on 20 issuers, shows a in the toolkit for financing Italian corporates. 18% substantial industry diversification because 17% our investment policies do not provide In 2017, the market is expected to be specific focus on certain industries although able to exceed the 2016 figures, with an < €2m €2-10m non-ethical sectors are excluded”. increasing interest from foreign operators. €10-25m The collaboration between debt funds and €25-50m Minard adds: “Regardless of the industry, we Italian banks will continue with the former €50-100m are looking for skilled and quality managers providing term debt and the latter funding €100-500m with credible and sustainable growth plans working capital facilities. > €500m for their companies.” Source: 3° Report Italiano Mini-bond, PoliMi Market data show that the manufacturing industry represents the largest part of the group (41%) followed by ICT (22%). Daniele Colantonio, Head of Business Development at Anthilia Capital Partners, comments: “We prefer to focus on companies with stable and predictable cash flows such as Andrea Giovanelli manufacturing and utilities firms rather Partner – Financial Advisory Italy than industries where turnover is based on contract basis like construction”.

Direct Lending fundraising

Global Direct Lending fundraising by quarter 1 Largest funds with final closings in Q1 2017 1

•• Hayfin Direct Lending Fund II€3,600m (Europe) 70 63 56 55 •• Alcentra European Direct Lending Fund II €2,807m (Europe) 60 52 •• Cerberus Levered Loan Opportunities Fund III $2,050m 50 (North America) $37.3bn 40 $33.3bn •• Bedrijfsleningenfonds €960m (Europe) 13 30 $22.8bn •• Golub Capital Partners International X $1,012m (North America) $21.6bn $13.3bn 20

0 2013 2014 2015 2016 2017

Q1 Q2 Q3 Q4 Number of funds

$4.0bn Direct Lending fundraising 3% Largest funds with final closing in H2 2016 1 by region (2013-17) 1 •• Pemberton European Mid-Market Debt Fund €1,200m (Europe)

$47.1bn •• AEA Middle Market Debt Fund III $1,025m (North America) 36% •• NXT Capital Senior Loan Fund IV $900m (North America)

•• TPG Specialty Lending Europe €812m (Europe) $81.2bn North America •• Monroe Capital Private Credit Fund II $800m (North America) 61% Europe

Rest of the World

1 Preqin, 2017. Currency amounts are in millions.

20 © Deloitte Alternative Capital Solutions Alternative Lender Deal Tracker Q1 2017 |Direct Lending fundraising

Europe Direct Lending fundraising by quarter 1 Key takeaways

40 •• While 2016 was disappointing for Direct Lending fundraising, primarily driven by weakness in the European market, 2017 saw 35 a strong recovery in Q1 (with over half of 2016 volumes already 30 raised), driven by a robust recovery in European volumes1 25 ––Europe saw the strongest quarter of fundraising ever, driven by 16 20 14 large funds that reached their final closings, with Hayfin Direct 14 $11.8bn $15.1bn 15 13 7 Lending Fund II the largest of these (€3.6 billion) $9.1bn 10 ––The US saw an average Q1 for Direct Lending fundraising, $5.7bn $5.4bn slightly up on Q1 2016 but down on Q1 2015 5 •• Europe’s recovery in Q1 reiterates the lumpy nature of the 0 1 2013 2014 2015 2016 2017 fundraising market ––Q1 2017 saw approximately the same volume of closings as the Q1 Q2 Q3 Q4 Number of funds previous five quarters combined

US Direct Lending fundraising by quarter 1 •• Strong investor interest in separately managed accounts 38 continues, meaning that not all capital committed to the Direct 40 37 35 Lending space is easily captured2 33 35 •• c. 135 Direct Lending funds seeking aggregate commitments of c. 30 $55 billion remain in the market as of May 2017, a c. 10% increase 1 25 on earlier in the year $20.5bn $19.8bn $18.9bn 20 ––North American funds represent the majority of that market $15.8bn (c. 75 funds targeting c. $35 billion) with c. 40 European funds 15 making up c. $17 billion. The North American figures have crept 4 10 . $3.8bn up while European figures have remained relatively constant, 5 potentially reflecting recent European closing activity.

0 2013 2014 2015 2016 2017 Q1 Q2 Q3 Q4 Number of funds

1 Preqin, 2017. 2 Credit Suisse Private Fund Group market knowledge.

1 Excluding €700m of managed accounts/overflow vehicles 2 Excluding €2.5bn of leverage, total fund capacity of €5bn 3 Global investment focus with significant allocation to the European market. How much funding has been raised The amount includes leverage and managed accounts 4 Excluding credit facilities and European Direct Lending separately managed accounts 5 $5.6bn in current total commingled fund commitments net of repayments and without including managed accounts; including which they have global funds with equity commitments of $12.9bn 6 Fund focussed on junior debt structures by which Direct Lending managers? 7 Excluding €145m of managed accounts/overflow vehicles 8 Excluding €100m of managed accounts/overflow vehicles 9 Global investment focus with significant allocation to the European market 10 Subsequent fundraise of the funds with the same investment focus

Pricoa Direct Lending fund raising focused on the European market 5

Fundraise

Idinvest10 Metric Capital 4 4 Partners Capzanine Idinvest10

Tikehau8

HPS 4 Idinvest10 Ardian Idinvest10 Ares 3 Investment MV Credit Proventus 3 Bain Capital3 Partner5

Hayﬁn European Permira Capital CVC Credit 2 Ares Idinvest10 Idinvest10 2 ICG Alcentra Hayﬁn BlueBay1 Bain Capital3 Partners THCP6 BlueBay7 Tikehau

Crescent 6 European Capital EQT EMZ 9 CVC Credit Avenue KKR Praesidian Northleaf Harbert Partners MV 1 Alcentra ICG Rothshild CVC Credit Partners 1 GSO2 Management Quadrivio Bain Tikehau Credit Capital3 Hayﬁn Corporation THCP6 Kartesia Cordet Pemberton Capzanine ICG Indigo Tikehau Capital Four Tavis Capital

Jan 13 Jun 13 Dec 13 Jun 14 Dec 14 Jan 15 Jun 15 Dec 15 Jun 16 Dec 16 Jun 17

Alcentra Avenue Capital Four Cordet EQT Harbert ICG Kartesia MV Credit Permira Proventus Tavis Capital Ardian Bain Capital Capzanine CVC European Capital Hayﬁn Indigo KKR Northleaf Praesidian Quadrivio THCP = fund size (€500 million) Ares BlueBay Crescent EMZ GSO HPS Idinvest Metric Capital Pemberton Pricoa Rothschild Tikehau Partners 22 © Deloitte Alternative Capital Solutions Alternative Lender Deal Tracker Q1 2017 | Direct Lending fundraising

1 Excluding €700m of managed accounts/overflow vehicles 2 Excluding €2.5bn of leverage, total fund capacity of €5bn 3 Global investment focus with significant allocation to the European market. The amount includes leverage and managed accounts 4 Excluding credit facilities and European Direct Lending separately managed accounts 5 $5.6bn in current total commingled fund commitments net of repayments and without including managed accounts; including which they have global funds with equity commitments of $12.9bn 6 Fund focussed on junior debt structures 7 Excluding €145m of managed accounts/overflow vehicles 8 Excluding €100m of managed accounts/overflow vehicles 9 Global investment focus with significant allocation to the European market 10 Subsequent fundraise of the funds with the same investment focus

5 Pricoa

Fundraise

Idinvest10 Metric Capital 4 4 Partners Capzanine Idinvest10

Tikehau8

HPS 4 Idinvest10 Ardian Idinvest10 Ares 3 Investment MV Credit Proventus 3 Bain Capital3 Partner5

Hayﬁn European Permira Capital CVC Credit 2 Ares Idinvest10 Idinvest10 2 ICG Alcentra Hayﬁn BlueBay1 Bain Capital3 Partners THCP6 BlueBay7 Tikehau

Jan 13 Jun 13 Dec 13 Jun 14 Dec 14 Jan 15 Jun 15 Dec 15 Jun 16 Dec 16 Jun 17

Alcentra Avenue Capital Four Cordet EQT Harbert ICG Kartesia MV Credit Permira Proventus Tavis Capital Ardian Bain Capital Capzanine CVC European Capital Hayﬁn Indigo KKR Northleaf Praesidian Quadrivio THCP = fund size (€500 million) Ares BlueBay Crescent EMZ GSO HPS Idinvest Metric Capital Pemberton Pricoa Rothschild Tikehau Partners © Deloitte Alternative Capital Solutions 23 Alternative Lender Deal Tracker Q1 2017 | Direct Lending fundraising

How much funding has been raised by which Direct Lending managers?

An overview of some of the largest funds raised in the market1

AlternativeLenders Date Size (EURm) w/o leverage Investment Strategy Geography

Alcentra

Direct Lending Fund Q1 17 2,200 Direct Lending Europe

Direct Lending Fund Q4 14 850 Direct Lending Europe

Direct Lending Fund Q4 12 278 Direct Lending Europe

Ardian

Ardian Private Debt Fund III Q3 15 2,026 Direct Lending Europe

Axa Private Debt Fund II Q2 10 1,529 Direct Lending Europe

Ares

ACE III Q1 16 2,536 Direct Lending senior and junior Europe

ACE II Q1 13 911 Direct Lending senior and junior Europe

ACE I Q4 07 311 Direct Lending senior and junior Europe

Bain Capital

Bain Capital Specialty Finance ² Q4 16 1,406 Senior Direct Lending Global

Bain Capital Direct Lending 2015 (Levered) ² Q1 15 433 Senior Direct Lending Global

Bain Capital Direct Lending 2015 (Unlevered) ² Q3 15 56 Senior Direct Lending Global

Bain Capital Middle Market Credit 2010 ² Q2 10 1,017 Junior Direct Lending Global

Bain Capital Middle Market Credit 2014 ² Q4 13 1,554 Junior Direct Lending Global

BlueBay

BlueBay Direct Lending Fund II SLP Q4 15 2,100 Direct Lending senior and junior Europe

BlueBay Direct Lending Fund I SLP Q2 13 810 Direct Lending senior and junior Europe

1 Based on data provided to Deloitte. ² Invested capital and committed capital converted at an exchange rate of 1.1245 EUR/USD as of May 31, 2017.

24 © Deloitte Alternative Capital Solutions Alternative Lender Deal Tracker Q1 2017 | Direct Lending fundraising

How much funding has been raised by which Direct Lending managers?

An overview of some of the largest funds raised in the market1

AlternativeLenders Date Size (EURm) w/o leverage Investment Strategy Geography

GSO

Capital Opportunities Fund III Q4 16 $6,500 Junior Global

Capital Opportunities Fund II Q1 12 $4,000 Junior Global

European Senior Debt Fund Q4 15 $1,964 Senior Europe

Hayfin Capital Management

Direct Lending Fund II Q1 17 3,500 Direct Lending senior Europe

Direct Lending Fund I Q1 14 2,000 Direct Lending senior Europe

ICG

ICG Europe Fund V Q1 13 2,500 Mezzanine Europe

ICG Europe Fund VI Q3 15 3,000 Mezzanine Europe

Senior Debt Partners I Q2 13 1,700 Direct Lending senior Europe

Senior Debt Partners II Q3 15 3,000 Direct Lending senior Europe

KKR

Fund I Q2 15 1,000 Direct Lending Europe

Northleaf

Northleaf Private Credit Q4 16 $1,400 Direct Lending senior and junior Global

Pricoa

Pricoa Capital Partners V Q1 17 1,692 Junior capital Global

Proventus

Proventus Capital Partners III Q1 14 1,500 Direct Lending senior and junior Europe

Proventus Capital Partners II/IIB Q2 11 835 Direct Lending senior and junior Europe

Proventus Capital Partners I Q3 09 216 Direct Lending senior and junior Europe

1 Based on data provided to Deloitte.

Recent Direct Lending moves

The analysis by Paragon Search Partners

Amit Chachlani joins as an Associate from Peter Lockhead joins as a Managing Director Ares ICG Partners Group from Avenue

Sebastian Lorenz joins as a Director from Ares Matt Carty joins as a Director from RBS Guillermo Ferre Ibanez joins as an Associate Barings Kartesia Axel Wikner joins as an Executive from from JP Morgan Leveraged Finance Citi Leveraged Finance

Matt Kenny joins as a Director from Paul Atefi joins as a Director from Beechbrook KKR Ibex Capital JP Morgan Leveraged Finance

Henrik Wikerman joins as an Analyst from Jan Henrik Reichenbach joins as a Head Cordet Muzinich Deutsche Bank of DACH Private Debt from EY

Axel Wehtje joins as a Senior Associate from Jonathan Wheeler left his position as a European Capital Muzinich Goldman Sachs Leveraged Finance Vice President Sven Bozuwa joins as a Director from Permira

Constance D’Avout left his position as an Eric Capp joins as a Partner from EQT Pemberton Associate to go to Silverfleet RBS Capital Markets

Srijan Thakur joins as an Associate from Laura Berguig joins as an Associate from GIC Permira Houlihan Lokey Citi Leveraged Finance

HIG Whitehorse Arturo Melero left his position as a Principal Praesidian Christian Heidl left his position as a Partner

26 © Deloitte Alternative Capital Solutions Alternative Lender Deal Tracker Q1 2017 | Recent Direct Lending moves

Recent Direct Lending moves

Paragon Search Partners Bruce and Andrew are co-Managing Partners of Paragon Search Partners, a London based search firm focused on the global credit markets, leveraged and acquisition finance, IB and private equity.

To contact Bruce Lock at Paragon by email, use [email protected]

To contact Andrew Perry at Paragon by email, use [email protected]

To contact by phone the office telephone number is+44 (0) 20 7717 5000.

Bruce Lock Andrew Perry Managing Director Managing Director of Paragon Search of Paragon Search Partners Partners

Deloitte’s CFO Survey

28 © Deloitte Alternative Capital Solutions Alternative Lender Deal Tracker Q1 2017 | Deloitte’s CFO Survey

Results from Deloitte’s European CFO Survey Q1 2017

The survey presents the insights from CFOs across Europe on market and business sentiment. The findings discussed here are representative of the opinions of 1,580 CFOs based in 19 European countries and were collected between February and March 2017.

Financial prospects (%) Optimism among European CFOs Compared to three/six months ago, how do you feel about the financial prospects for rebounded strongly between the third your company? quarter of 2016 and the first quarter of Net Absolute changes 2017. For the first time since we began the balalnce to Q3 2016 (pp) 13% 49% 38% GDP 25% +23 European CFO survey, we have seen a broad 12% 51% 37% € 25% +21 improvement in sentiment across almost all 3% 41% 55% AT 52% +41 participating countries, and a net balance 8% 47% 45% BE 38% +27 of +25% of CFOs are now more optimistic 15% 53% 32% CH 18% +9 about the financial prospects of their firms 11% 58% 30% DE 19% +12 than they were three/six months ago. This 7% 58% 35% DK 28% N/A represents a 23 percentage point rise since 8% 43% 49% ES 42% +22 our last survey six months ago. 4% 45% 52% FI 48% +33 16% 47% 37% FR 21% +29 34% 39% 27% Improved optimism has come on the back GR -6% N/A 13% 46% 42% of strengthening growth in Europe. Europe’s IE 29% +29 15% 59% 27% recovery gained traction in the final quarter IT 12% +12 10% 38% 52% of 2016 and was then further boosted at the NL 43% +38 6% 48% 46% start of 2017 when a number of economic NO 40% +20 22% 39% 39% indicators suggested resilience in the face PL 18% -1 13% 35% 52% of political uncertainty. PT 39% +39 4% 44% 51% RU 47% +23 8% 24% 68% SE 60% +29 The overall improvement in sentiment 40% 30% 30% TR -10% +16 is also likely to reflect the fact that some 17% 52% 31% UK 14% +45 risks (mainly geopolitical) have not yet materialised or created the negative shock Less optimistic Broadly unchanged More optimistic that some had feared. Source: Deloitte publication “European CFO Survey Q1 2017: Recovery continues” © Deloitte Alternative Capital Solutions 29 Alternative Lender Deal Tracker Q1 2017 | Deloitte’s CFO Survey

Capital expenditure Capital expenditure (%) Overall, CFOs in our cohort are more In your view, how are capital expenditure for your company likely to change over the optimistic about the outlook for capex over next 12 months? the next 12 months (+24% net balance). 67 70% 60 Significantly, compared to Q3 2016, CFOs 55 50 53 53 49 46 46 46 have become even more optimistic about 50% 43 40 39 38 41 capex (+16pp). 40% of European CFOs expect 34 33 32 34 30% capex to rise; 16% expect it to decrease and 21 18 43% expect it to remain the same. 10% 0% 0 In the UK there has been a turnaround in -10% -4 -4 -8 -10 -10 -11 -13 -11 -12 investment sentiment. Compared to the Q3 -16 -14 -16 -14 -18 -18 -19 -17 -18 2016 results, where a net balance of -50% -30% -35 planned to decrease capex, a net balance of -39 -50% -22% now plan to decrease capex. However, GDP €ATBECHDEDKESFIFRGRIEITNLNOPLPTRUSEUTR K while the outlook has clearly improved in Decrease Increase Europe’s second largest economy, CFOs in the UK still have the lowest risk appetite Operating margin (%) among the close to 1,600 CFOs surveyed. In your view, how are operating margins for your company likely to change over the next 12 months?

Operating margin 66 70% 63 66 60 The outlook for operating margins is positive 56 58 55 47 48 51 50 45 45 and has improved. A net balance of +25% of 50% 41 44 40 38 41 CFOs expect operating margins to rise over 30% 25 the next 12 months. 21 17 10% CFOs in Sweden are the most optimistic 0% (+62%), followed by those in Belgium (+57%) -10% -6 -4 -11 -8 -14 -14 -12 -13 -14 -14 and Russia (+51%). CFOs in the UK retain a -19 -17 -17 -20 -22 -20 negative outlook for opening margins (-26%), -30% -25 -24 -34 and are the most pessimistic in the cohort, -38 -50% -46 followed by CFOs in Switzerland (-9%). GDP €ATBECHDEDKESFIFRGRIEITNLNOPLPTRUSEUTR K Decrease Increase

Source: Deloitte publication “European CFO Survey Q1 2017: Recovery continues” 30 © Deloitte Alternative Capital Solutions Alternative Lender Deal Tracker Q1 2017 | Deloitte’s CFO Survey

Source of funding – GDP weighted net balance (%) Bank borrowing (%) How do you currently rate various sources of funding for How do you currently rate bank borrowing as a source of funding corporates in your country? for corporates in your country?

70% 100

60% 60% 54% 80 50% 51% 50% 47% 60 40% 39% 40% 39% 39% 32% 30% 40 28% 28% 26% 20% 20% 20 10% 7% 3% 0 0% GDP €ATBECHDEDKESFIFRGRIEITNLNOPLPTRUSEUTR K -8% -9% -10% Negative Neutral Positive -11%

-20% Corporate debt (%) Q1/15 Q3/15 Q1/16 Q3/16 Q1/17 How do you currently rate corporate debt as a source of funding Bank borrowing Internal ﬁnancing Corporate debt Equity for corporates in your country?

Bank borrowing continues to be the preferred sources of funding 100 across Europe, followed by internal financing, corporate debt and equity. 80

CFO’s views on equity funding have improved (+13pp) in line with the 60 continued strength in European and global equity markets. Credit conditions remain accommodative in most markets – especially 40 the euro area and UK – and bank borrowing remains the most attractive form of financing among CFOs as a result. The fact that 20 there has been a dip in the popularity of bank borrowing (-10pp) this quarter may reflect the fact that deflation is much less of a concern 0 for policymakes now and markets have brought forward their GDP €ATBECHDEDKESFIFRGRIEITNLNOPLPTRUSEUTR K expectations for interest rate rises. Negative Neutral Positive

Source: Deloitte publication “European CFO Survey Q1 2017: Recovery continues” © Deloitte Alternative Capital Solutions 31 Alternative Lender Deal Tracker Q1 2017 | Insights into the European Alternative Lending market

Insights into the European Alternative Lending market

32 © Deloitte Alternative Capital Solutions Alternative Lender Deal Tracker Q1 2017 | Insights into the European Alternative Lending market

Alternative Lender ‘101’ guide

Who are the Alternative Lenders and why are they becoming more relevant? Alternative Lenders consist of a wide range of non-bank institutions with different strategies including private debt, mezzanine, opportunity and distressed debt.

These institutions range from larger asset Key differences to bank lenders? managers diversifying into alternative debt •• Access to non amortising, bullet to smaller funds newly set up by structures. ex-investment professionals. Most of the funds have structures comparable to those •• Ability to provide more structural One-stop seen in the private equity industry with a flexibility (covenants, headroom, cash solution 3-5 year investment period and a 10 year sweep, dividends, portability, etc.). life with extensions options. The limited •• Access to debt across the capital partners in the debt funds are typically structure via senior, second lien, insurance, pension, private wealth, banks Key unitranche, mezzanine and quasi equity. or sovereign wealth funds. benefits of Greater Alternative Speed of • Increased speed of execution, short • structural Lenders execution Over the last three years a significant credit processes and access to decision flexibility number of new funds has been raised in makers. Europe. Increased supply of Alternative •• Potentially larger hold sizes for leveraged Lender capital has helped to increase the loans (€30m up to €300m). flexibility and optionality for borrowers. •• Deal teams of funds will continue to monitor the asset over the life of the loan. Scale Cost-effective simplicity However

•• Funds are not able to provide clearing facilities and ancillaries.

•• Funds will target a higher yield for the increased flexibility provided.

Euro Private Placement ‘101’ guide

Euro PP for mid-cap corporates at a glance Since its inception in July 2012, the Euro Private Placement (Euro PP) volumes picked up significantly. After the amendment in the insurance legislation in July 2013, the majority of Euro PPs are currently unlisted. The introduction of a standardised documentation template by the Loan Market Association (LMA) in early 2015 is supportive of a Pan-European roll-out of this alternative source of financing.

Key characteristics of the credit Main features of Euro PP Pros and Cons of Euro PP investor base •• Loan or bond (listed or non-listed) – Long maturity •• Mainly French insurers, pension funds If listed: technical listing, no trading and Bullet repayment (free-up cash flow) and asset managers no bond liquidity Diversification of sources of funding •• Buy and Hold strategy •• Usually Senior, unsecured (possibility to (bank disintermediation) include guarantees if banks are secured) •• Target lending: European mid-cap size, Very limited number of lenders for international business exposure, good •• No rating each transaction credit profile (net leverage max. 3.5x), •• Minimum issue amount: €10m usually sponsor-less Confidentiality (no public financial •• Pari passu with other banking facilities disclosure)

•• Fixed coupon on average between Covenant flexibility and adapted to 3% and 4.5% – No upfront fees the business

•• Maturity > 7 years General corporate purpose

•• Bullet repayment profile Make-whole clause in case of early repayment •• Limited number of lenders for each transaction and confidentiality Minimum amount €10m (no financial disclosure) Minimum credit profile; leverage •• Local jurisdiction, local language < 3.5x

•• Euro PPs take on average 8 weeks to issue

34 © Deloitte Alternative Capital Solutions Alternative Lender Deal Tracker Q1 2017 | Insights into the European Alternative Lending market

How do Direct Lenders compare to other cash flow debt products?

Debt size

€500m Cash ﬂow Investment Grade Bonds High Yield Bonds debt products The overview on the left focuses on €400m the debt products Direct Lenders available for Investment Grade and Sub-Investment Grade companies. €300m Private Instrument

Public Instrument Private Placement €200m

€100m

€50m

€40m

€30m

€20m

€10m Senior Bank Loans, Bilateral & Syndicated Peer-to-Peer €0m AAA AA A BBB BB B CCC Credit Risk

How do Alternative Lenders compete with bank lenders?

Margin

15%

Alternative Lenders 10%

6% 6% Hurdle 5% Rate Banks

1 Growth capital Bank club Unitranche Risk proﬁle ‘Story credit’ or junior debt deals unitranche or junior debt

Leveraged loan banks operate in the 350bps to 600bps margin Other Direct Lending funds focus on higher yielding private debt range providing senior debt structures to mainly companies owned strategies, including: ‘Story credit’1 unitranche and subordinated by private equity. debt or growth capital.

Majority of the Direct Lenders have hurdle rates which are above Similar to any other asset class the risk return curve has come L+600bps margin and are mostly involved in the most popular down over the last 3 years as a result of improvements in the strategy of ‘plain vanilla’ unitranche, which is the deepest part of European economies and high liquidity in the system. the private debt market. However, Direct Lenders are increasingly raising senior risk strategy funds with lower hurdle rates. 1 ‘Story Credit’ – unitranche facility for a company that historically was subject to a financial restructuring or another financial difficulty and as a result there is a higher (real or perceived) risk associated with this investment. 36 © Deloitte Alternative Capital Solutions Alternative Lender Deal Tracker Q1 2017 | Insights into the European Alternative Lending market

What are the private debt strategies?

Margin We have identified seven distinctive private debt strategies in the mid-market Direct Lending landscape:

20% 1 Mid-cap Private Placements Structured Equity 7 2 Traditional senior debt 18% 3 Unitranche

16% 4 ‘Story credit’ unitranche Growth capital 6 5 Subordinated (mezzanine/PIK)

14% Holdco PIK 6 Growth capital

5 7 Structured equity 12% Mezzanine There is a limited number of Alternative Lenders operating in the L+450bps to L+600bps pricing territory. 10% ‘Story credit’ unitranche 4 A number of large funds are now actively raising capital to

8% target this part of the market.

Unitranche 3 Direct Lenders approach the mid-market with either a niche 6% strategy (mainly new entrants) or a broad suite of Direct Scarcity of Financial Solutions Lending products to cater for a range of financing needs.

4% The latter is mostly the approach of large asset managers. Traditional senior debt 2

2% 1 Mid-cap private placements

0% €0m €50m €100m €200m €250m €300m Debt size Note: Distressed strategies are excluded from this overview

How does the Direct Lending investment strategy compare to other strategies?

Target return Investment Preferred Carried Fund strategy Description Fund term Management fee (Gross IRR) period return interest

Invest directly into 5-7 years (plus 1-2 Direct senior corporate credit at Typically around 1% on 5-10% 1-3 years optional one year 5-6% 10% lending senior levels of the invested capital extensions) capital structure

Opportunistic investments across the Typically 1.25 – 1.50% Specialty capital structure and/or 8-10 years (plus 2-3 on invested capital 15%- lending/credit in complex situations 12-20% 3-5 years optional one year 6-8% or less than 1% on 20% opportunities extensions) Typically focused on commitments senior levels of the capital structure

1.50 – 1.75% on Primarily invest in commitments during 10 years (plus 2-3 mezzanine loans and investment period, Mezzanine 12-18% 5 years optional one year 8% 20% other subordinated on a reduced basis extensions) debt instruments on invested capital thereafter

Invest in distressed, Various pending target stressed and 7-10 years (plus 2-3 return and strategy: Distressed undervalued securities 15-25% 3-5 years optional one year 1.50 – 1.75% on 8% 20% Includes distressed extensions) commitments or 1.50% debt-for-control on invested capital

Management fee – an annual payment made by the limited partners in the fund to the fund’s manager to cover the operational expenses Preferred return (also hurdle rate) – a minimum annual return that the limited partners are entitled to before the fund manager starts receiving carried interest Carried interest – a share of profits above the preferred return rate that the fund manager receives as compensation which is based on the performance of the investment

38 © Deloitte Alternative Capital Solutions lteratie leer eal traer | nsights into the lterntie ening ret Alternative Lender Deal Tracker Q1 2017 | Insights into the European Alternative Lending market

Whoo aarere tethe Directiret lLenders?eners

United Kingdom

Germany Poland

Spain Nordics

Italy enelux

Ireland Portugal Siterland

France Especially focused on Euro PP

Note: oﬃces included with at least one dedicated Direct Lending professional. The graph does not necessarily provide an overview of the geographical coverage.

When to use Alternative Debt?

Reduce equity contribution and enable Private Equity acquisitions 1 more flexible structures

Corporates making transformational Enable growth of private companies 2 / bolt-on acquisitions with less / no cash equity

3 Growth capital Enable growth opportunities

4 Consolidation of shareholder base Enable buy-out of (minority) shareholders

5 Special dividend to shareholders Enable a liquidity event

To refinance bank lenders in highly- Enable an exit of bank lenders 6 levered structures

Increase leverage for acquisitions / Raising junior HoldCo debt 7 dividends

40 © Deloitte Alternative Capital Solutions Alternative Lender Deal Tracker Q1 2017 | Insights into the European Alternative Lending market

What debt structures are available in the market?

trtres DA

Senior et an

nitrane un

2x Holdco PIK olo 1000 1200bps uit

5x 4x Second lien 5x Unitranche 700 Unitranche 650 900bps 650 4x Senior 750bps 750bps debt 400 500bps Up to 2x Senior debt 50 – 350bps 1x Senior debt L + 250 - 350bps nlevere everae nitrane iurate nitrane nitrane olo eighte erage ost o et ase o ipoit aerage rage Note: the structures and pricing presented 450bps 700bps 700bps 15bps 50 350bps are indicative and only for illustrative purposes Pros a os per strtre

 oest priin  nrease leverae  Strete leverae  Strete leverae  Strete leverae  elationsip an  Clu o relationsip  leile ovenants  leile ovenants  leile ovenants  ullet C ans  nestop sop solution  reater role or an  oer euit ontriution  Spee o eeution  ea ore liui part  o nterreitor  elationsip lener o te unitrane aret  o leverae  ore restritive ters  ier priin  ier priin  ier priin  Sorter tenor ears  artl aortisin  nterreitorAA

Which landmark unitranche deals have been completed?

Selected Landmark Unitranche Deals (>€90m)

Borrower CountryUnitranche in €m LendersSponsor Date Schuelerhilfe Germany Alcentra May - 17 JVH Gaming Netherlands Ares May - 17 Duomed Netherlands Permira May - 17 Fintyre Italy GSO Capital PartnersApr - 17 Zenith UK Goldman Sachs Mar - 17 Dentix Spain KKR - Dec - 16 Paymentsense UK CVC, EQTN- ov - 16 Roompot Netherlands KKR Nov - 16 HCS Group Germany GSON- ov - 16 Lifetime Training UK Alcentra Oct - 16 Lumenis Netherlands Alcentra Oct - 16 Mallinckrodt UK GSO Aug - 16 Mater Private Hospital Ireland Macquarie, Goldman Sachs, KKR Aug - 16 Laureate Education Switzerland ICG, Credit Suisse Jun - 16 Marlink Norway Ares, Tikehau Jun - 16 Groupe Bertrand France BlueBay Asset Management - Jun - 16 Dobbies Garden Centres UK Ares Jun - 16 InfoVista France Ares May - 16 Marle France Capzanine, Barings May - 16 Polynt and Reichhold Italy GSO May - 16 OpenBet UK Ares - Apr - 16 Petainer UK KKR Apr - 16 Citation UK Alcentra Apr - 16 Delsey France Avenue, Pemberton, Permira Nov - 15 Verastar UK Ares Nov - 15 Fintrax Ireland Ares Nov - 15 Oberscharrer Germany BlueBay Nov - 15 ESE Netherlands Avenue, BlueBay Nov - 15 Bibliotheca Switzerland BlueBay Oct - 15 Gala Bingo UK ICG Oct - 15 Chiltern / Theorem UK/USA Hayﬁn, ICG, HPS Investment Partners, Bain Capital - Sep - 15 Currencies Direct UK Alcentra, CVC, HPS Investment Partners Sep - 15 Tracscare Group UK BlueBay Jul - 15 Ezentis Spain HPS Investment Partners - Jun - 15 MH Group Denmark Alcentra Jun - 15 Shimtech Industries UK Ares May - 15 0 100 200 300 400 500 600 700

Source: LCD, an offering of S&P Global Market Intelligence, Deloitte research and other publicly available sources 42 © Deloitte Alternative Capital Solutions Alternative Lender Deal Tracker Q1 2017 | Insights into the European Alternative Lending market

More sponsor-less companies are turning to Direct Lenders to finance growth

Background Opportunity Key advantages Key advantages of using Alternative •• Traditionally private companies •• Alternative Lenders are actively looking Lenders to fund a buy and build without access to further shareholder to form longer term partnerships with strategy may include: funding lacked the ability to make performing private companies to fund transformational acquisitions expansion •• Accelerate the growth of the company and exponentially grow the •• Bank lenders are typically not able •• Recent market transactions have been shareholder value in a shorter time to fund junior debt/quasi equity risk structured on Debt/EBITDA multiples period. and would require a sizable equity as high as 4.5-5.5x including identifiable contribution from the shareholders to hard synergies. Typically, this is subject •• No separate equity raising required fund acquisitions to c.30 – 40% implied equity in the as Alternative Lenders can act as a structure, based on conservative one stop solution providing debt and •• Cost savings, revenue synergies and enterprise valuations minority equity. ability to purchase bolt on acquisitions at lower EBITDA multiples makes a buy •• A number of Alternative Lenders are able •• Significant capital that Alternative and build strategy highly accretive for to fund across the capital structure from Lenders can lend to a single company shareholder’s equity senior debt through minority equity (€150-300m) making Alternative Lenders ideal for long term partnership relationships and follow Sponsor backed versus private Direct Lending deals on capital for multiple acquisitions. As % of total deals per quarter

12 7 13 25 23 15 15 28 24 29 27 32 22 17 27 23 30 30 110 100 75% 100% 54% 80% 57% 73% 87% 75% 83% 76% 70% 72%73% 82% 81%87% 77% 83% 82%

UK 50

10 13 21 10 32 26 26 55 41 29 38 40 48 45 43 48 38 49 178 100 80% 92% 90% 100% 75% 85% 62% 76% 80% 79%71% 70% 65% 62% 81%73% 76% 69% 75% 50

Rest of Europ e 0 Q4/12 Q1/13 Q2/13 Q3/13 Q4/13 Q1/14 Q2/14 Q3/14 Q4/14 Q1/15Q2/15 Q3/15QQ4/15 1/16 Q2/16Q3/16 Q4/16Q1/17 LTM

Sponsor Sponsor-less

Unlocking transformational acquisitions for privately owned companies

Indicative calculations

•• The calculations on this page illustrate the theoretical effect of value creation through acquisitions financed using Alternative Lenders.

•• In this example equity value grows from £100m to £252m in 4 years time. Without the acquisition, the equity value would have been only £177m, using the same assumptions and disregarding any value creation as a result of multiple arbitrage.

Value creation through M&A Indicative calculations

Step 2 – Step 1 – Acquisition Funding Step 3 – Value after 4 years Result Assumptions Buyer Target Combined Post Cap structure Cap structure deal cap after 4 years after 4 years structure with acquisition without •• Both business Value acquisition 350 creation generate £10m due to EBITDA with £2m synergies 13 Outstanding potential synergies 300 debt (£55m) & 55 warrants (£13m) after 4 years •• No debt currently in 250 £75m of additional the business value creation for equity holders 200 20 20 as a result •• Cost of debt is 8% of the acquisition with 5% penny Debt funding warrants on top EV (£ Million) 150 Equity 100 252 value •• 10% EBITDA growth growth 100 200 pa; 75% Cash 177* += conversion; 20% Equity 50 100 100 funding Corporate tax rate 100 •• No transaction costs 0 EBITDA £10m £10m £22m £22m £32m £15m

Target EV unitranche Equity Warrants Synergies

* EV is c.£147m and with c.£30m cash on balance sheet brings the equity value to c.£177m

Deloitte Debt and Capital Advisory

What do we do for our clients?

Debt and Capital Advisory

Independent Global resources & Market leading Demonstrable advice execution expertise team track record

•• We provide independent •• A leading team of 180 debt •• Widely recognised as a Global •• In the last 12 months, we advice to borrowers across professionals based in 30 leader with one of the largest have advised on over 100 the full spectrum of debt countries including Europe, Debt Advisory teams transactions with combined markets through our global North America, Africa and debt facilities in excess of •• We pride ourselves on our network Asia, giving true global reach €10bn innovative approach to •• Completely independent from •• Our expertise ranges from challenging transactions and •• Our target market is debt providers of finance – our the provision of strategic the quality of client outcomes transactions ranging from objectives are fully aligned advice on the optimum we achieve, using our hands €25m up to €750m with those of our clients capital structure and available on approach sources of finance through to the execution of raising debt Debt and Capital Services provided

Refinancing Acquisitions, Restructuring Treasury disposals, mergers or negotiating

•• Maturing debt facilities •• Strategic acquisitions, •• New money requirement •• Operations in multiple involving new lenders and jurisdictions and currencies •• Real or potential breach of •• Rapid growth and expansion greater complexity creating FX exposures covenants •• Accessing new debt markets •• Staple debt packages to •• Develop FX, interest rate and •• Short term liquidity pressure maximise sale proceeds commodity risk management •• Recapitalisations facilitating •• Credit rating downgrade strategies payments to shareholders •• Additional finance required as a result of a change in •• Existing lenders transfer debt •• Cash in multiple companies, •• Asset based finance to release strategic objectives to an Alternative Lender group accounts, countries and value from balance sheet currencies •• FX impacts that need to be •• Derivatives in place and/or •• Off balance sheet finance reflected in the covenant banks hedging requirements •• Hedging implementation or definitions to be met banks hedging requirements •• Assessing multiple proposals to be met from lenders •• Foreign currency denominated debt or operations in multiple currencies

Depth and breadth of expertise in a variety of situations

How complex is your credit?

etor aret positio liets

rot olatile     Stale o     i aret sare Clialit i     o an     e Copetitors Seasonalit i     o e     an arriers to entr Sarit o prout Cooit     i valuea i     o Custoer onentration Canin reulator i     o i     o Supplier onentration environent Complex

High uality credit

Complex

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UK Deloitte Debt and Capital Advisory One of the most successful Debt and Capital Advisory teams

Partners Debt Advisory UK

Fenton Burgin Chris Skinner Nigel Birkett Karlien Porre Nick Soper John Gregson Floris Hovingh Partner Partner Partner Partner Partner Partner Partner +44 (0) 20 7303 3986 +44 (0) 20 7303 7937 +44 (0) 161 455 8491 +44 (0) 20 7303 5153 +44 (0) 20 7007 7509 +44 (0) 20 7007 1545 +44 (0) 20 7007 4754 [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected]

UK Team

James Blastland Robert Connold George Fieldhouse Anil Gupta Roger Lamont Carl Sharman Adam Worraker Tom Birkett Andrew Cruickshank Director Director Director Director Director Director Director Assistant Director Assistant Director +44 (0) 20 7303 7502 +44 (0) 20 7007 0479 +44 (0) 20 7007 2612 +44 (0) 113 292 1174 +44 (0) 20 7007 7731 +44 (0) 20 7007 7128 +44 (0) 20 7303 8347 +44 (0) 20 7007 9758 +44 (0) 20 7007 0522 [email protected] [email protected] [email protected]. uk [email protected] [email protected] [email protected] [email protected] [email protected] [email protected]

Alex Dugay David Fleming Dave Grassby Louise Harvey Ben James Guillaume Leredde Henry Pearson Jon Petty Manuele Rosignoli Assistant Director Assistant Director Assistant Director Assistant Director Assistant Director Assistant Director Assistant Director Assistant Director Assistant Director +44 (0) 20 7007 9593 +44 (0) 20 7007 3629 +44 (0) 161 455 6309 +44 (0) 20 7303 3476 +44 (0) 20 7303 2467 +44 (0) 20 7007 9561 +44 (0) 20 7303 2596 +44 (0) 161 455 6186 +44 (0) 20 7303 8191 [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected]

Adam Sookia Alex Baker Holly Fletcher Lili Jones Michael Keetley Sabina Kerr Phil McManus James Merry Alex Penney Assistant Director Manager Manager Manager Manager Manager Manager Manager Manager +44 (0) 113 292 1927 +44 (0) 161 455 5770 +44 (0) 161 455 6497 +44 (0) 20 7007 2365 +44 (0) 131 535 0384 +44 (0) 20 7303 4600 +44 (0) 20 7303 5323 +44 (0) 20 7303 7643 +44 (0) 20 7303 6266 [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected]

Stephanie Richards Alex Skeaping Sam White Lucy Fall Charlie Millar Graeme Rodd Magda Tylus Alexis Santis Manager Manager Manager Assistant Manager Assistant Manager Assistant Manager Assistant Manager Senior Associate +44 (0) 20 7303 3052 +44 (0) 20 7007 7881 +44 (0) 20 7007 1224 +44 (0) 20 7007 2472 +44 (0) 20 7007 7625 +44 (0) 20 7007 7009 +44 (0) 20 7007 9318 +44 (0) 20 7007 8062 [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected]

Deloitte Debt and Capital Advisory credentials

Our UK team has completed over 60 transactions in the last 24 months

CFC Capital Limited Ullink A-Plan CVL Euromoney Institutional BCA Zenith Intelliflo Staple Refinancing Refinancing Staple Investors Refinancing Staple Refinancing Acquisition Financing

April 2017 April 2017 April 2017 February 2017 February 2017 February 2017 January 2017 January 2017 Undisclosed Undisclosed Undisclosed Undisclosed $201m + £162m £500m Undisclosed £24.5m

Champ Ventures FL Partners Global Garden Products Chase Templeton Cogital Group Five Arrows Bridgepoint Renewi Growth Finance Acquisition Financing Refinancing Acquisition financing Acquisition Financing Dividend Recap Acquisition Financing Acquisition Finance

January 2017 January 2017 November 2016 November 2016 October 2016 October 2016 October 2016 September 2016 €20m £15m €80m Undisclosed NOK 3,675m £115m Undisclosed €600m

P&I Ullink Trace One Waterland Private Equity Agilitas Private Equity Apex Fund Services Baxters Food Group Domino’s Pizza Group Staple financing Refinancing Acquisition financing Amendment & Restatement Acquisition financing Refinancing Refinancing Refinancing

September 2016 August 2016 August 2016 July 2016 July 2016 July 2016 July 2016 July 2016 Undisclosed Undisclosed Undisclosed €600m Undisclosed $40m $115m + £48m £175m

HgCapital Working Links Augusta Ventures Cape Livingbridge Alternative Networks HgCapital Adey Refinancing Refinancing Growth Capital Amend & Extend Acquisition financing Amend & Extend Refinancing Staple Financing

June 2016 June 2016 June 2016 June 2016 June 2016 June 2016 June 2016 May 2016 $32m Undisclosed £30m £300m £36m £40m £75m £70m

IWG HgCapital CBPE St. Austell Brewery HgCapital Speed Medical HgCapital HgCapital Amend & Extend Refinancing Refinancing Amend & Extend Acquisition financing Refinancing Acquisition financing Refinancing

May 2016 May 2016 March 2016 March 2016 February 2016 February 2016 January 2016 December 2015 £550m DKK300m £86m £45m £85m £22m $270m £47m

Mears North Edge HgCapital HgCapital Findel Impellam Group Vitruvian HgCapital Amend & Extend Acquisition financing Refinancing Refinancing Refinancing & Securitisation RCF / Acquisition financing Refinancing Refinancing

December 2015 December 2015 December 2015 November 2015 November 2015 November 2015 October 2015 October 2015 £140m £9m €365m £41m £120m + £145m £250m Undisclosed Undisclosed

Global Deloitte Debt and Capital Advisory One of the most successful Debt and Capital Advisory teams

Co-heads Global senior team EMEA Australia Austria Belgium Brazil Canada Chile China

Fenton Burgin Katherine Howard Ben Trask Sebastiaan Preckler Carlos Rebelatto Robert Olsen Jaime Retamal Patrick Fung +44 (0) 20 7303 3986 +61 293 223 428 +43 15 3700 2950 + 32 2 800 28 35 +55 813 464 8125 +1 41 6601 5900 +56 22 729 8784 +852 2238 7400 [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected]

Americas Czech Republic Denmark France Germany India Ireland Israel

Andrew Luetchford Radek Vignat Thomas Bertelsen Olivier Magnin Axel Rink Vishal Singh Michael Flynn Joseph Bismuth +1 41 6601 5277 +420 246 042 420 +45 30 93 53 69 +33 1 4088 2885 +49 (69) 75695 6443 +91 22 6185 5203 +353 1417 2515 +972 3 608 5554 [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected]

Asia Pacific Italy Japan Mexico Netherlands Norway Poland Portugal

Richmond Ang Andrea Giovanelli Haruhiko Yoshie Jorge Schaar Alexander Olgers Andreas Enger Michal Lubieniecki Jose Gabriel Chimeno +65 6216 3303 +39 335 1406765 +81 80 443 51 383 +52 55 5080 6392 +31 8 8288 6315 +47 23 279 534 +48 22 5110 010 +351 21 042 2512 [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected]

Singapore South Africa Spain Switzerland UAE UK USA

Richmond Ang Fredre Meiring Jordi Llido John Feigl Aziz Ul-Haq Fenton Burgin John Deering +65 6216 3303 +27 1 1209 6728 + 34 932 533 702 +41 582 796 633 +971 4506 4802 +44 (0) 20 7303 3986 +1 70 4333 0574 [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected]

Deloitte Debt and Capital Advisory credentials

Selected Global transactions

Foreman Capital / Standard HgCapital Monjasa A/S Habock Aviation Group EUROFIMA Koncenton Sovereign Capital Koncenton Investment Acquisition Financing Refinancing Build up financing Financial Advisor Mortgage Finance Debt Advisory Mortgage Finance Acquisition Financing

April 2017 March 2017 March 2017 March 2017 March 2017 March 2017 February 2017 February 2017 $315m Undisclosed $67.5m €25m Undisclosed €25m €26m €50m

USA Denmark Denmark Spain Switzerland Denmark Ireland Denmark

ATP Acta Marine TUHF Limited LionHorn Pte Ltd Northern Irish Home Builder Oceanwide Royal Boom Project Roma Recapitalisation Capex Financing Pvte Placement Bond Acquisition Financing Debt Raising Refinancing Refinancing Refinancing

Undisclosed Project Roma

January 2017 January 2017 January 2017 December 2016 December 2016 December 2016 December 2016 December 2016 Undisclosed Undisclosed ZAR280m Undisclosed €6m Undisclosed Undisclosed Undisclosed

Denmark Netherlands South Africa Singapore/Malaysia Ireland Netherlands Netherlands USA

Project Homeland II Project Grey WinSystems Limited Every Angle Refresh Financial University College Zealand Real Estate Koncenton Growth Financing Financing Acquisition Finance EIB Financing Debt financing Refinancing Debt Raising Acquisition Finance

Project Project Grey Real Estate Homeland II

December 2016 December 2016 December 2016 November 2016 November 2016 November 2016 November 2016 November 2016 Undisclosed Undisclosed Undisclosed €7.5m CAD $75m €32m €6.3m €60m

USA USA USA/UK Netherlands Canada Denmark Ireland Denmark

Hotel Industry Naviair Pension Fund CTR A/S Bain Capital Credit Fund Manager BOG-ART Property Developer Debt Raising Recapitalisation Recapitalisation Construction Finance Debt Advisory Debt Raising Additional financing Capital Raise

Irish Property Hotel Industry Pension Fund Fund Manager Developer / Hotelier

November 2016 November 2016 November 2016 October 2016 September 2016 September 2016 August 2016 August 2016 €39.2m €15m €80m €400m Undisclosed €7.6m €10m €87m

Ireland Denmark Denmark Denmark Ireland Ireland Romania Ireland

District M. Inc Furlani’s Food Corporation Hg Capital Benchmark Hospitality Berlin Acoustics Group Hans Anders Karle Homes Pvt Ltd Desch Refinancing Buy-Side/Capital Raise Acquisition Financing Acquisition Financing Refinancing & Debt Advisory Refinancing Mezzanine Debt Refinancing

August 2016 August 2016 July 2016 July 2016 July 2016 July 2016 July 2016 July 2016 CAD$30m Undisclosed $120m Undisclosed Undisclosed Undisclosed $60m Undisclosed

Canada Canada USA Ireland Germany Netherlands India Netherlands

Notes

Important Notice in relation to page 20-21

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