Q4 2020 European Direct Lending Perspectives

Creditﬂux

Going for gold Direct lending set for a big year in 2021 Creditflux DLBook nowMar21 -A4ammended.indd 1 2 © Creditflux/Debtwire European Direct Lending Perspectives For sponsorship information please contact: +44 20+44 3741 1058 [email protected] Karina Ross Event sponsors: 11 March 2021 13:00GMT Lending Forum European Direct events.creditflux.com/direct-lending Book now C r e d i tﬂ u x +44 20+44 3741 1075 [email protected] Chris Coe Fin Dox +1 212 5001394 [email protected] Alissa Rozen 23/02/2021 16:11:12 Contents Contents

Editor’s letter: Direct lenders set for a bumper 2021 4

League tables: Debtwire Par’s exclusive rankings 5

Data analysis: Direct lending figures at your fingertips 9

News: Selected stories from Debtwire and Creditflux 12

Fundraising analysis: Direct lending shows its resilience 14

Feature: 2020 review: When will the real test begin? 17

Survey: Direct lending new year euphoria 20

Feature: 2021 outlook: The dust is yet to settle 24 © Creditflux/Debtwire

3 4 © Creditflux/Debtwire European Direct Lending Perspectives to set themselves up for astrong 2021 early-2020 expectations and bounced back with aplomb In this issue, we lookat how direct lenders exceeded Debtwire European Direct Lending Perspectives (EDLP). Welcome to the ninth edition of the Creditflux and the music plays. direct lenders willcontinue to dance as long as factors that could hamper in2021, activity but and emerging variants of COVID-19 are certainly Europe, difficulties over vaccine deployment Sporadic lockdowns inthe UK and continental this year. of respondents believe deployment willincrease be agoodyear for direct lending. Almost 70% survey reveals that the market expects 2021 to caused by recurring national lockdowns, our and intermittent periods of economic instability portfolios, some level of debt restructurings Despite the wobbles of covenant problems in further 22%anticipating billion. €40-50 another 22%expecting billion €30-40 and a expecting €20-30 billion to beraised this year, make up for lost time, of with44% respondents to Debtwire Funds Data. But 2021 is likely to raised –a56%year-on-year drop, according fundraising figures, when just €16 billion was This is instark contrast to last year’s they expect no, orindeed, apositive impact. efforts in 2021, with another 32%saying have only aminimal impact ontheir fundraising said they expect coronavirus disruption to that 59% of respondents to our yearly survey Private debt providers are, infact, so upbeat according to Debtwire Par data. strong, reaching €4.13 billion across 124 deals, billion. But issuance inthe final quarter was in 2020, a13%decline from 2019’s €18.2 Direct lending issuance totalled €15.8 billion was their best-ever quarter. several months, and many funds willtell you Q4 became nervous about deploying. Fast forward when the pandemic began and debt providers a bang, defying all early-year expectations The direct lending market finished 2020 with as longthemusic plays Direct lenders willdance Fast forward several will tell you Q4 was their best-ever quarter. months, and many funds and bounce back better than ever. market are preparing to brush themselves off demand and how those inthe direct lending data and news, as well as features onpent-up the usual deal data, league tables, fundraising expectations for the year ahead. You willfind In this edition, we lookback over 2020 to draw given their to ability act quickly and quietly. creating more opportunities for direct lenders, from private (PE) firms, equity which in turn is making way for more pre-emptive approaches part of this year. Inflated asset prices are also is likely to lead to healthy issuance inthe early M&A inQ1 2021 is proving fruitful so far, which

Europe co-deputy editor lending coverage, finance and direct Head of leveraged Mariana Valle League tables

League tables

Debtwire Par’s exclusive league tables show the top lenders in Europe in the key regions and for mid-market and senior debt

2020 FYE EMEA Direct Lending League 2020 FYE EMEA Direct Lending Table (Senior & Subordinated) League Table (Senior-only) Research by Darren Rank Direct lender # of % Rank Direct lender # of % Maharaj deals share deals share Manager of 1 Ares 51 10.8% 1 Ares 48 11.1% global fixed income data 2= Barings Direct 25 5.3% 2 Barings Direct 25 5.8% Lending Lending 2= Pemberton 25 5.3% 3 Pemberton 24 5.6% 4 Arcmont AM 22 4.7% 4 Arcmont AM 22 5.1% 5 Kartesia 21 4.4% 5 Kartesia 20 4.6% 6 Alcentra 20 4.2% 6= Alcentra 19 4.4% 7= Bridgepoint 19 4.0% 6= Bridgepoint 19 4.4% Credit Credit 7= CIC Private 19 4.0% 8 BlackRock 17 3.9% Debt 9= Apera AM 16 3.7% 9= IDInvest 18 3.8% 9= CVC Credit 16 3.7% 9= Tikehau 18 3.8% 9= IDInvest 16 3.7% 11= BlackRock 17 3.6% 9= Tikehau 16 3.7% 11= CVC Credit 17 3.6% 13= CIC Private 13 3.0% 13 Apera AM 16 3.4% Debt 14 Permira 13 2.8% 13= Permira 13 3.0% 15= Ardian 12 2.5% 15 LGT Private 12 2.8% 15= LGT Private Debt 12 2.5% Debt 16 Muzinich 11 2.6% 17 Muzinich 11 2.3% Private Debt Private Debt 17= Ardian 10 2.3% 18 Ture Invest 10 2.1% 17= Ture Invest 10 2.3% 19 DunPort Capital 9 1.9% 19 DunPort Capital 9 2.1% 20= Bright Capital 8 1.7% 20= Bright Capital 8 1.9% 20= Cordet Capital 8 1.7% 20= Cordet Capital 8 1.9% 20= HF Private Debt 8 1.7% 20= HF Private Debt 8 1.9% 20= Shard Credit 8 1.7% 20= Shard Credit 8 1.9% 24= Crescent 7 1.5% Capital 24= Crescent 7 1.6% Capital 24= Investec 7 1.5% 24= Investec 7 1.6% © Creditflux/Debtwire 26 Capital Four 6 1.4%

5 6 © Creditflux/Debtwire European Direct Lending Perspectives (<€150m) (Senior&Subordinated) 2020 FYE EMEA Direct Lending Mid-market League Table (Senior &Subordinated) 2020 FYE UKI Direct Lending League Table Rank Rank 1 1 2 2 3= 3 3= 4= 5 4= 6= 4= 6= 7 6= 8= 9 8= 8= 10= 11 10= 12= 10= 12= 13 14= 14 14= 15 16= 16= 16= 16= 16= 18= 16= Direct lender Direct lender Ares Ares Barings Direct Lending Pemberton Alcentra Barings Direct Lending Kartesia Alcentra IDInvest Apera AM Apera AM CVC Credit Arcmont AM DunPort Capital Pemberton Arcmont AM CIC Private Debt Bridgepoint Credit Shard Credit Bridgepoint Credit Kartesia CVC Credit LGT Private Debt Tikehau Permira BlackRock BlackRock LGT Private Debt Investec Muzinich Private Debt HPS Ardian KKR Ture Invest Muzinich Private Debt DunPort Capital Shawbrook # of deals # of deals

20 32 27 10 10 10 10 10 19 19 16 16 16 15 13 12 13 12 14 14 14 17 11 9 9 6 6 3 3 3 3 8 8 8 4 4 7 % share % share % 17.7% 5.0% 6.6% 5.2% 2.6% 5.5% 2.6% 4.9% 5.5% 4.9% 5.5% 2.2% 2.2% 4.4% 3.6% 3.6% 2.8% 3.6% 4.4% 4.4% 4.4% 2.3% 3.9% 3.9% 7.0% 3.3% 3.4% 3.3% 7.2% 4.1% 4.1% 4.1% 1.7% 1.7% 1.7% 3.1% 1.7% (>€150m) (Senior&Subordinated) 2020 FYE EMEA Direct Lending Large-cap League Table (Senior &Subordinated) 2020 FYE DACH Direct Lending League Table Rank 1 2 3 4= 4= 4= 7= 7= 7= 7= 7= 12= 12= 12= 12= 12= 12= Rank 1= 1= 3= 3= 5= 5= 5= 8= 8= 8= 11= 11= 11= 11= 11= 11= 11= 11= 11= Direct lender Ares Pemberton Arcmont AM Bridgepoint Credit Barings Direct Lending Park Square HPS BlackRock CIC Private Debt Permira Tikehau Apollo GM Bain Capital Credit CVC Credit Lending Deutsche Bank Direct GS Private Capital KKR Direct lender BlackRock Pemberton Bright Capital HF Private Debt Apera AM Ares Barings Direct Lending Ardian Capital Four Muzinich Private Debt Akquivest Alcentra Arcmont AM Bridgepoint Credit Cordet Capital Hayfin Capital IDInvest Investec LGT Private Debt # of deals # of deals 24 9 6

5 5 5 3 3 3 3 3 4 3 4 4 4 4 3 3 3 8 2 8 2 2 4 2 4 2 4 2 2 2 2 7 7 % share % % share % 28.6% 10.4% 10.4% 10.7% 6.0% 6.0% 6.0% 4.8% 3.6% 4.8% 3.6% 4.8% 3.6% 4.8% 3.6% 3.6% 4.8% 3.6% 2.6% 2.6% 2.6% 2.6% 2.6% 5.2% 2.6% 5.2% 2.6% 5.2% 2.6% 2.6% 3.9% 3.9% 3.9% 9.1% 9.1% 7.1% League tables

2020 FYE France & Monaco Direct Lending League Table 2020 FYE Southern Europe Direct Lending League Table (Senior & Subordinated) (Senior & Subordinated)

Rank Direct lender # of deals % share Rank Direct lender # of deals % share 1 CIC Private Debt 19 24.4% 1= Kartesia 6 13.3% 2 IDInvest 14 17.9% 1= Oquendo Capital 6 13.3% 3 Tikehau 10 12.8% 3 Tikehau 4 8.9% 4 Barings Direct Lending 6 7.7% 4= Anthilia Capital 3 6.7% 5 Ardian 5 6.4% 4= Arcmont AM 3 6.7% 6= BlackRock 4 5.1% 4= Azimut 3 6.7% 6= Bridgepoint Credit 4 5.1% 4= Muzinich Private Debt 3 6.7% 6= Kartesia 4 5.1% 4= Resilience Partners 3 6.7% 9= Alcentra 3 3.8% 9= CVC Credit 2 4.4% 9= Arcmont AM 3 3.8% 9= Equita Capital 2 4.4% 9= CVC Credit 3 3.8% 11= Alantra 1 2.2% 12= Ares 2 2.6% 11= Apollo GM 1 2.2% 12= CAPZA Private Debt 2 2.6% 11= Banca Finanziaria 1 2.2% 12= LGT Private Debt 2 2.6% 11= BlackRock 1 2.2% 12= Pemberton 2 2.6% 11= Bridgepoint Credit 1 2.2% 12= Siparex 2 2.6% 11= CAPZA Private Debt 1 2.2% 17= Access Capital 1 1.3% 11= CIT Group 1 2.2% 17= Actomezz 1 1.3% 11= Green Arrow 1 2.2% 17= Andera Partners 1 1.3% 11= GS Private Capital 1 2.2% 17= Apera AM 1 1.3% 11= H&A Global IM 1 2.2% 17= GS Private Capital 1 1.3% 11= HIG Capital 1 2.2% 17= Hayfin Capital 1 1.3% 11= IDInvest 1 2.2% 17= ICG 1 1.3% 11= LGT Private Debt 1 2.2% 17= Muzinich Private Debt 1 1.3% 11= Och-Ziff Capital 1 2.2%

2020 FYE Benelux Direct Lending League Table (Senior & 2020 FYE Nordic Direct Lending League Table (Senior & Subordinated) Subordinated)

Rank Direct lender # of deals % share Rank Direct lender # of deals % share 1 Ares 5 11.1% 1 Ture Invest 9 22.0% 2= Alcentra 3 6.7% 2 Ares 8 19.5% 2= Barings Direct Lending 3 6.7% 3= Arcmont AM 4 9.8% 2= Bridgepoint Credit 3 6.7% 3= Cordet Capital 4 9.8% 2= Dexteritas IM 3 6.7% 3= Permira 4 9.8% 6= Arcmont AM 2 4.4% 6= Ardian 2 4.9% 6= Capital Four 2 4.4% 6= Crescent Capital 2 4.9% 6= Crescent Capital 2 4.4% 8= Alcentra 1 2.4% 6= CVC Credit 2 4.4% 8= Bain Capital Credit 1 2.4% 6= Dutch Mezz Fund 2 4.4% 8= Bridgepoint Credit 1 2.4% 6= Kartesia 2 4.4% 8= Capital Four 1 2.4% 6= Neos Direct Lending 2 4.4% 8= Deutsche Bank Direct 1 2.4% Lending 8= GS Private Capital 1 2.4% © Creditflux/Debtwire

7 8 © Creditflux/Debtwire European Direct Lending Perspectives (Senior &Subordinated) 2020 FYE EMEA Healthcare Direct Lending League Table Table (Senior&Subordinated) 2020 FYE EMEA Financial Direct Services Lending League Rank Rank 1 1 2 2 3= 3= 3= 3= 5= 5= 5= 5= 7= 5= 7= 5= 7= 5= 7= 5= 11= 5= 11= 5= 11= 5= 11= 5= 11= 5= 11= 5= 17= 17= 17= 17= 17= Direct lender Direct lender Ares Ares Kartesia Alcentra Ardian Apollo GM CIC Private Debt LGT Private Debt Apera AM Bain Capital Credit Pemberton Barings Direct Lending Barings Direct Lending Bridgepoint Credit CVC Credit CIC Private Debt IDInvest Dexteritas IM Tikehau DunPort Capital Alcentra Investec BlackRock KKR Bridgepoint Credit Pemberton Crescent Capital Permira Lending Deutsche Bank Direct Tikehau Muzinich Private Debt Ture Invest Arcmont AM Apera AM Ardian Azimut Bright Capital # of deals # of deals 13 6 6 5 5 3 3 2 3 2 3 2 3 2 3 2 2 2 2 2 2 2 2 4 2 2 4 2 2 2 2 7 1 1 1 1 1 % share % share % 26.0% 12.0% 11.5% 6.0% 6.0% 4.0% 4.0% 4.0% 4.0% 2.0% 4.0% 2.0% 4.0% 2.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% 6.6% 6.6% 8.2% 4.9% 8.2% 4.9% 4.9% 4.9% 9.8% 3.3% 3.3% 3.3% 3.3% 3.3% 3.3% 1.6% 1.6% League Table (Senior&Subordinated) 2020 FYE EMEA Business &Related-services Direct Lending Table (Senior&Subordinated) 2020 FYE EMEA Western Europe TMTDirect Lending League Rank 1 2 3 4 5= 5= 5= 5= 9= 9= 11 12= 12= 12= 12= 12= 12= 12= Rank 1 2 3 4 5= 5= 5= 5= 9= 9= 9= 9= 13= 13= 13= 13= 17= 17= 17= Direct lender Ares Barings Direct Lending Arcmont AM CVC Credit Alcentra BlackRock Bridgepoint Credit IDInvest Apera AM Kartesia Shard Credit Bright Capital Capital Four CIC Private Debt HF Private Debt Investec LGT Private Debt Muzinich Private Debt Direct lender Ares Arcmont AM BlackRock Tikehau Bridgepoint Credit Kartesia Pemberton Ture Invest Apera AM Cordet Capital IDInvest Permira Alcentra Ardian Barings Direct Lending Pride Capital Crescent Capital DunPort Capital GS Private Capital # of deals # of deals 10 13 14 9 6 6 6 6 5 5 3 3 3 8 3 3 3 3 4 6 5 5 5 5 8 3 3 3 3 2 4 2 4 2 4 4 7 % share % % share % 11.0% 11.9% 2.5% 2.5% 2.5% 2.5% 4.2% 2.5% 2.5% 4.2% 6.8% 2.5% 3.4% 5.5% 4.5% 4.5% 6.4% 4.5% 4.5% 3.6% 3.6% 3.6% 3.6% 7.6% 2.7% 2.7% 2.7% 2.7% 7.3% 1.8% 1.8% 1.8% 5.1% 5.1% 5.1% 5.1% 9.1% Data analysis Debtwire direct lending data

Research by Ben Watson Direct lending issuance jumps up in Q4 following Market analyst a lacklustre pandemic performance Debtwire Par

Number of unitranches vs unitranche volume

70 4 Unitranche volume (€ bn) 60 3 50

40 2 30

20 Number of deals of Number 1 10 0 0 JanFebMar AprMayJun Jul AugSepOctNovDecJanFebMar AprMayJun Jul AugSepOctNovDecJanFebMar AprMayJun Jul AugSepOctNovDec 2018 2019 2020 no. DL unitranches no. DL non-uni Total volume of direct lending activity

2020 marked by opportunistic issuance Direct lending issuance totalled €15.8 billion in 2020, a 13% decline from the previous year’s €18.2 billion. Under the circumstances, however, the final tally augurs well for the direct lending market. Deals came in ebbs and flows throughout the year during the intermittent periods of favourable financial conditions, which resulted in volumes from the three months of March, June and September accounting for almost half of the issuance for the year overall. In Q4, €4.13 billion was raised across 124 deals, marking something of a return to a more even level of activity. A total of 424 deals were completed over 2020 and, due to the dip in the average size of the facilities, this compares even more favourably to 2019 than the overall debt total. Unitranches accounted for just under 60% of direct lending issuance over the course of the year, in line with historical averages.

Large cap vs mid-market unitranche Use of proceeds

80 3.5 5 70 3.0

60 Volume of deals 2.5 4 50 2.0 40 3 1.5

30 € bn 2

Number of deals of Number 1.0 20 0.5 10 1 0 0.0 Q1 Q2 Q3 Q4 0 Q1 Q2 Q3 Q4

No. MM deals No. LC deals Vol. MM deals Vol. LC deals M&A Recap & Reﬁ Other

Consistent unitranche activity Dealmaking creates bedrock of issuance The troubled waters of 2020 were well navigated by direct lenders, with unitranche issuance M&A activity buttressed direct lending issuance © Creditflux/Debtwire totalling €10.8 billion for the year. Even while broadly syndicated loans were absent in over the course of 2020, averaging €2.4 billion per April and generally struggled for the remainder of Q2, large cap (above €150 million debt) quarter. Refinancing was more variable. That said, the unitranche volume surged to more than €3 billion. Over the year, mid-market unitranches figure is heavily skewed by the largest deal of the maintained a solid and stable performance, reaching a sum of €3.5 billion and ending on a year – UK insurance broker Ardonagh’s €2.27 billion high – 34 deals worth €500 million were completed in December. direct lending facility.

9 10 © Creditflux/Debtwire European Direct Lending Perspectives 11% ing the landmark direct lending deal from Ardonagh, the healthcare sector rose to lead by activity sector with€2.26 billion, comprising 17%of issuance. under €2billion –less than half the €4.5 billion raised in2019. The financial services sector expanded over 2020 to represent 26% of issuance. Exclud- Looking past the small contraction to overall issuance in2020, the TMTsector saw the most significant change inproportional issuance, dropping to Financial sector fills ingap left by TMT Sectoral issuance over 187 deals in2020. French direct lending marginally declined to 18% of issuance with91deals. The UK continued its dominance inthe market with€6.56 billion inissuance The UK issuance’s dominance still unrivalled Sub-regional unitranche distribution Mid-market direct lending now represents just under 30%of total mid-market volume, compared to 45%in2017, 48%in2018 and 42%in2019. in early 2019. The €5.03 billion of direct lending issuance raised in2020 was handily surpassed by the €13.2 billion elsewhere inthe mid-market space. While Direct lendingof mid-market portion declines Mid-market volume vs number of deals 32% Deal value (€bn) 7%

MM direct lending (€bn)

UKI distribution of direct lending deals perregion was relatively stable, withnoticeable trends of increasing DACH issuance (82deals completed), while

Manufacturing Chemicals & industrials 0 5 3 2 4 1 24% direct lending continued steadfastly, the traditional of portion the mid-market maintained its lead inissuance over direct lending that was gained 20% 1Q 11%

DACH 2%

2018

2018 2Q 2017 5% 3% 3Q

France 7% 13%

Other mid-market (€bn)

TMT Consumer & retail 4Q 17% 8% 34% 6%

Nordics 1Q 2Q 2018 9%

Benelux 21% 25% 25% 3Q 6%

All other Financial services

No. direct lending MM deals 4Q 9%

Southern Europe

2019

2019 1% 1Q 2% 16% 11% 2Q 16% 2019

Power & utilities Gaming & leisure 8% 3Q 39% 3% 9%

Total no. MM deals 4Q 1Q 8% 30% 18% 9%

Healthcare 14% 2Q 2020 10% 2% 3Q

2020

2020 4Q 17% 9% 17% 0 50 100 150 200 250

8% 6% deals of Number 38% 14% Section name XXXXXX Section name XXXXXX

Paul Hastings is a market leader in global private credit funds, advising on the structuring and implementation of cross- border and domestic transactions. The breadth of quality and experience in our team enables us to provide technical and commercial advice to meet the needs of sophisticated providers of finance at all levels of the capital structure. We regularly act for leading private equity funds, alternative asset managers, commercial banks, investment banks and debt funds in the credit space through our international network. © Creditflux/Debtwire We believe that the depth and breadth of expertise that © Creditflux/Debtwire we have in the credit funds universe is unique.

For further information, please contact [email protected]

EDLP_Q4 2020_Book_V1_AT.indb 11 01/12/2020 15:14:51 Direct_Lending_Report_Ad_4c_210x297mm_092319.indd 1 9/23/2019 11:04:13 AM 12 © Creditflux/Debtwire European Direct Lending Perspectives here are just asmall sample of what is onoffer make these must-have services for amarket for news. hungry The stories direct lending. Breaking exclusives onfunds, launches, strategies and hires Creditflux and Debtwire on biggestthereport stories in the world of news inbrief Direct lending across all alternative markets. remains healthy and highlight that declining volume is afeature Despite the low headline figures, sources say fundraising on COVID-19.visibility was to accommodate investors wishing to wait for greater early Q2but pushed these back to the end of the year. This Many fund managers originally outlined final closes in Q1 and capital (€1.03 billion) to the market. funds held first closes but brought only one-tenth of the Artemid Senior Loan III million). (€400 InQ3 2019, seven (€500 million); Capza’s 5Flex Equity (€450million); and million); Capital Four’s Private Debt III –Senior Lending Asset Management’s inaugural senior loan fund (€900 fund in its series Ares Capital V(€6.97 billion); Pemberton amassed €10.12 billion infirst closes, including: Ares’ fifth coronavirus volatility. Ten European direct lending funds first closes in Q3 as they sought to deploy capital amid But Creditflux’s Funds Data reveals more managers held European Private Loan Fund II (€1.5 billion). European Mid-Market Debt Fund II (€3.2 billion) and Barings European Direct Lending Fund III (€5.5 billion), Pemberton raised €10.6 billion. These included mega-funds Alcentra Creditflux reported that five managers held final closesand The fundraising total is abig drop from Q3 2019, when there is amore positive not story reflected inthis dour picture. no final closes held in Q3. But market participants point out European direct lending fundraising slumped year onyear, with Direct lending’s ready to blossom Grupo Mutua as its strategic partner. venture capital. The move follows Alantra’s incorporation of PE, active funds, private debt, infrastructure, real estate and and secondaries. It plans to offer these solutions across through direct investments, fund of funds, co-investments become a“leading pan-European diversified asset manager” Alantra says the acquisition willstrengthen its bid to million through private bonds and preferred equity. in SMEs inEurope withrevenue between €20 million-€300 and other European geographies. Paris-based Indigo invests mezzanine and unitranche debt. late last year. It willinvest inFrench companies and target Mezzanine &Unitranche Financing 5, avehicle launched In addition, CIC says ithas so far raised million €340 for CIC private debt for CIC’s London branch, is lead portfolio manager. is akin to that of atypical European CLO. Steve Dunn, head of loans and granular portfolio composition, the fund’s asset pool has invested in80companies. Given the emphasis onlarge-cap ELCF 1,which launched in2017, also at €300million, and which The fund follows asimilar strategy to its predecessor, CIC million-€500 million EBITDA. loans to companies with€100 2 willinvest inPE-backed Large Cap Senior Debt Fund debt fund. CIC European million for aEuropean senior (CIC) is looking to raise €300 Crédit Industriel et Commercial loan fund CIC launches CLO-like accelerate its growth inItaly sponsorless market and its position inthe French firm says will consolidate Indigo Capital, which the private debt manager mezzanine and junior 49% stake inEuropean Alantra has acquired a French direct lender Alantra buys stake in

News

Club deals lose ground as banks turn up caution Mushroom growers CNC gets big backing With M&A having picked up pace in H2 2020, one thing Sun European’s acquisition of CNC Holdings, a Dutch mushroom is becoming clear – bank clubs are scarcer. Direct lenders substrate business, was backed by a circa €75 million unitranche have gained ground, particularly on speed of execution, provided by Crescent Capital, according to two sources familiar with many PE firms pre-empting deals and tapping with the situation. funds for financing to get ahead of competitors in an overheated market. While funds have been blazing ahead Though the deal was marketed off around €20 million by sell- to deploy, banks have proceeded with caution, picking side adviser EY, CNC’s 2019 EBITDA was closer to €16 million, their battles carefully and favouring the more lucrative with €91 million of revenue. Financiers were considering leverage underwriting model. around or below 4x. Pricing on the debt is around Euribor+ 650 bps, one of the sources added. Another sticking point for banks this year has been COVID-adjusted or forward-looking 2021 EBITDA CNC Holding comprises five companies that focus on calculations, neither of which have gone down well at banks’ production and transport of substrates for growing mushrooms, credit committees. Add to that the fact many banks have with locations across the Netherlands and Poland. The suffered in the pandemic, making them more hesitant in businesses range from CNC Exotic Mushrooms B.V., which the senior club arena. Regional differences are emerging, provides substrates for edible mushrooms grown on wood however, with banks in the DACH region continuing to offer or compost, to AMCO B.V., which transports straw-rich horse strong competition. manure. There were questions throughout the process around the co-operative ownership, but the asset was viewed as strong “It seems it’s the case everywhere in Europe that banks within the substrates industry. are retreating from the mid-market except for Germany, where they’re basically doing unitranches. They’re not on every deal but prove extremely aggressive for the assets they know and like. It’s really annoying for us actually,” said a Germany-based direct lender.

“In some cases, you’re seeing bank clubs having a bit of a comeback, but it’s not on the straightforward deals. Ultimately, we will see a decline in clubs and a shift to unitranche, but on certain deals the senior option is attractive,” said a Netherlands-based banker.

EQT lines up debt funds for SaaS acquisition EQT is finalising a group of private debt providers to part-finance its buyout of German software- as-a-service (SaaS) provider thinkproject, which focuses on construction intelligence. The sponsor has lined up Bridgepoint Credit, Goldman Sachs PIA, Northleaf, Park Square/SMBC JV and Partners Group to provide a unitranche and acquisition facility package, according to four sources familiar with the situation.

The financing is expected to comprise a €177.5 million unitranche and a €60 million acquisition facility provided by the funds, as well as a small RCF from Commerzbank, one of the sources said. © Creditflux/Debtwire

The competitive financing process saw funds pitch as high as 7x and banks 5x-5.5x. EQT acquired a majority stake in thinkproject for an EV multiple not far from 30x. The asset was marketed off €30 million EBITDA including new business, or €24 million without.

13 14 © Creditflux/Debtwire European Direct Lending Perspectives demonstrated its resilience Direct lendinghas that was through conference calls, meetings, with investors to close acommitment, whether “Pre-COVID, ittook about 27 points of contact commitment increased significantly. points the firm took withinvestors to close a fund with virtual meetings –but the number of touch says LPs are slowly becoming more comfortable distribution at placement agent Eaton Partners, Peter Martenson, partner and head of global diligence and willingness to invest virtually. of volatility, as well as uncertainty over virtual due was LPs focusing ontheir own portfolios intimes Another factor that caused figures to dipin 2020 diversification among their portfolios. deploy throughout the years to maintain vintage demand,” he says. Moreover, investors must complete reversal this year withthe pent-up why people were holding back, itcould bea proven to resilient. bevery Ifthat were areason goodnews“The is that direct lending has investment consultant at bfinance. the asset class was,” says Trevor Castledine, waiting to see what happened and how resilient investors who had outlined deployments were was tested through market stress …perhaps “2020 was the first time European direct lending million hard cap. Oquendo Senior at €172 million, above its €150 cap, whileSpanish direct lender Oquendo closed Specialty Lending Europe II, at its €1billion hard European direct lending fund, SixthStreet slight boost inQ4. The latter closed its second Oquendo and SixthStreet gave figuresa and demand. fundraising willpick up in2021 by of virtue supply the slowdown, market participants are confident according to Debtwire Funds Data. But despite €16 billion in2020, down 56%year onyear, European direct lending volumes plunged to Pent-up demand portends rapid reversal of 2020 misfortunes driver for new fund selection, investors have Performance continues to bethe biggest refinancings from the record 2017 year. terms. There willalso bemany opportunities for deals and slightly better documentation and deal vintage for direct lenders, withaplethora of On the supply side, 2021 looks set to beagreat senior corporate direct lending funds. largely towards the more conservative end of the mandates last year were from insurance firms, Castledine says some of the firm’s biggest less freedom to move inthat direction.” withdrawals. There has been some demand, but salary schemes, rebalancing, derisking and cash there are other factors such as maturing final their projected returns,” she says. “Inthe UK, derisking than inthe UK and want to enhance “European pension schemes are less likely to be particularly from European investors. growing demand for senior direct lending, at Cambridge Associates, says she is seeing global head of the credit investment group Christine Farquhar, managing director and income and higher yields. Private credit provides diversification, stable reduced yields intheir fixed income allocations. volatility across portfolios their equity and investments, withinvestors facing increased continue to drive LPs towards private market Public capital markets and their performance with investors.” At the same time, there is alot more handholding times physically before you close acommitment. as we used to beable to meet orthree two allowed us to organise these more efficiently, goodthing is“The that the virtual aspect has COVID, that increased to 42,” Martenson says. emails –either withjust us orthe manager. During

Creditflux Researcher Armitage Robin Creditflux Reporter D’Souza Michelle Fundraising highlighted. In 2020, investors flocked to quality, established managers, considering them safer bets. On the supply side, 2021 looks COVID-19 has placed a magnifying glass on direct lenders. LPs acknowledge that the pandemic set to be a great vintage for has underlined differences between managers in terms of deal origination, documentation and risk direct lenders, with a plethora management capabilities – though the full impact on this won’t be fully visible for another two or of deals and slightly better three years. documentation and deal terms. Private debt fundraising seems well placed for 2021. Figures will be greatly enhanced by larger managers such as Ares Management, which raised €9 billion for its latest European direct lending fund (as of 31 December), and Hayfin Capital Management, which exceeded and European direct lending funds holding final closes in 2020 ultimately scrapped its €5.5 billion hard cap. Both have yet to hold a final close. Fund Manager Closed (€m) Despite optimism surrounding the distribution GSO European Senior Debt Fund II Blackstone 4,400 of COVID-19 vaccines, there remains cause for Permira Credit Solutions Permira 3,480 concern in the light of emerging coronavirus Crescent European Specialty Lending Crescent 1,600 variants and recurrent lockdowns. Fundraising Fund II looks certain to increase – the question is when? AlbaCore Partners II AlbaCore 1,500 European Asset Value Fund II HPS 1,380

European direct lending highest 2020 commitments

LP Fund Manager Commitment (m) Virginia Retirement System Ares Capital Europe Fund V Ares $300 Harmonie Mutuelle Fond Harmonie Mutuelle Emplois France Eiffel €200 Pennsylvania Public School Employees' Sixth Street Specialty Lending Europe II Sixth Street $125 Retirement System Oregon Investment Council Sixth Street Specialty Lending Europe II Sixth Street $125

Maine Public Employees Retirement Ares Capital Europe Fund V Ares €100 System New Mexico State Investment Council ICG Senior Debt Partners IV ICG $100

European direct lending fundraising 40 30 35 25 30 20 Funds closed 25 20 15 15 10

Total raised (€bn) 10 5 5 © Creditflux/Debtwire 0 0 2012 2013 2014 2015 2016 2017 2018 2019 2020

Total raised (€bn) Funds closed

15 EDLP_PrivateDebtAd_2020_v6_DS.indd 1 EDLP_Q4 2020_Book_V1_AT.indb 22 22 16 the private credit market Connect the pieces of or email [email protected] © Creditflux/DebtwireTo find out more information about our products, please call (0)20 +44 3741 1002 Debtwire and Creditflux give subscribers full insight into private debt European Direct Lending Perspectives

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C r e d i tﬂ u 01/12/2020 15:15:16

04/03/2020 13:18 Section name XXXXXX name Section 1 Feature 2020 in review: When will direct lending’s real test begin?

The industry spent 2020 in a holding pattern, with direct lenders waiting for the worst of the COVID-19 crisis to dissipate and reveal what parts of their businesses demanded the most attention

There was a certain amount of optimism at the much tested as put in a holding pattern, as Karis Hustad start of 2020. Despite some visible cracks in government assistance programmes provided Reporter second and third funds due to underperforming a buffer and lenders ran for cover in COVID- Debtwire deals, market conditions were good and direct resilient industries. By the end of the year, lenders were considering how to build on the leverage, margins and terms returned to success of the 2010s. Still, the industry forecast pre-COVID levels. that a downturn was looming and Europe’s direct lending sector would see its first great “We invest with a long-term perspective test. When the COVID-19 pandemic struck, and with good fundamentals, and I think we it seemed the test was about to begin: M&A would have had a different approach to the tanked, fundraising suffered, pricing rocked and sponsors if this was a real macro-economic the market bifurcated as lenders patched up crisis,” said a direct lender. Carl-Johan portfolios and took stock of restrictions ahead. Kullving Still, the year was not business as usual, Nordics Reporter However, looking back at the last 10 months, with plenty of quirks and lessons learned, Debtwire it seems the industry has not been so as well as one major question that has been © Creditflux/Debtwire

17 18 © Creditflux/Debtwire European Direct Lending Perspectives industries: virus restrictions slammed certain Furthermore, the impact was unequal across lack of cash flow. to address potential covenant breaches and lenders and sponsors able to work together companies inneed of liquidity, withmost were also able to direct cash towards portfolio yet to face asubstantial challenge. PE houses some people to argue that direct lending has introduced by European governments lead The financial support and furlough packages Buffer factors lending’s real test commence? unansweredleft so far: When willdirect Feature sectors especially hard, such as travel, leisure fundraising total of €16 billion across 15 funds retail and restaurants. While some of these have that had final close. Still, it was a huge drop from always been risky for leveraged finance, some 2019, when 23 funds had final close with a total seemingly certain bets — such as airplane- and amount of €37 billion, according to Debtwire airport-related services — did not pay off. Funds Data.

“COVID has been so specific in which industries “The fundraising has been going very well. it hit hard, so it’s difficult to see which direct The LPs are still trusting us and the business lenders have been doing a bad job,” said a model – that feels good. But I know some second direct lender. competitors that are struggling,” said the second direct lender. Back to core business While M&A activity dwindled as the pandemic began to surge in Europe, the market saw a recovery in H2. With most banks closed to activity, direct lenders had more optimism and could have a more opportunistic approach to After a quiet start to Q3, the the new deals that were testing the market. “The quality deals were very contested,” said a mid- auction pipeline has picked up market fund manager. significantly, with vendors keen Pre-existing relationships between owners and lenders became even more important, as to hit the market with assets that travel bans stamped out physical meetings. Some sell-side advisers also pushed for more were ready for sale pre-lockdown. transparency in the market by securing staple financing options in sale processes to make sure all PE bidders were able to bid, with lending The year in numbers alternatives secured at an early stage. Direct lending loan volumes in the mid-market space dropped to €4.1 billion EBITDAC attack in 2020, far below the €6.5 billion in 2019, While testing the boundaries of adjustments is according to Debtwire Par. Nonetheless, not new in M&A, 2020’s unique conditions saw margins have managed to recover to their another letter affixed to the EBITDA acronym: pre-COVID levels. Average margins for C. EBITDAC — ‘EBITDA before COVID’ — has unitranches averaged 700 bps in Q1 and Q2, started to be used as a measurement. In some dropping to 625 bps in Q3 before rebounding cases, sponsors are using the pandemic as an to 675 bps in Q4. exceptional item, adding back items related to business interruption insurance, restructuring Average leverage levels for unitranches started costs and lost revenue. on an all-time high in Q1 at 6.6x but plunged to 4.1x in Q2. The market saw some recovery in “People thought this was a joke at first, but no,” Q3 as levels climbed to 5.5x, ending in the last said an M&A adviser. “They look at monthly three months of the year with an average of performance during the summer and then around 5.3x. compare with performance during the second lockdown to argue what is the real performance Start of the roaring 20s? of the business without COVID. I know, it’s In some ways, it seems the industry has extreme, but if a company is solid and there is weathered the storm and optimism might good management, they go ahead.” return for 2021, particularly with vaccines being rolled out across Europe and Brexit Structures that changed finally done. Government spending on The outbreak of the pandemic also introduced COVID-19 support has created a window new ways to look at financial structures to for M&A to push forward ahead of March, create headroom and save space in case and companies are preparing for a wave of further liquidity needs arose. Lenders stood economic activity as restrictions lift. back from FOLOs, only fancied when margins and fees were higher and there was a possibility However, in the light of emerging for a future refinancing. Club deals were also coronavirus variants, renewed lockdowns and less common, as PE houses sped up auctions unguaranteed government support, lenders © Creditflux/Debtwire by pre-empting the hottest companies. might need to prepare themselves for another spring of covenant renegotiations, equity LP’s hunger for deployment continues injections and restructurings. The pandemic Despite the market uncertainty, LPs were willing is far from over – and the real test is perhaps to support the asset class. 2020 recorded a yet to come.

19 20

© Creditflux/Debtwire European Direct Lending Perspectives bright-eyed and optimistic intheir outlook for the year to come the trials and tribulations of 2020, direct lenders are much more Replies to our annual direct lending survey reveal that, after new year euphoria Direct lending’s billion inatough year. respondents said the same inthe 2020 survey, though funds ultimately raised just €16 yet fundraising blew away expectations withrecord-breaking sums (€37 billion). 84%of than €20 billion in2021. Inour 2019 survey, only 63%of respondents anticipated this, 94% of survey respondents expect European-focused direct lending funds to raise more How much doyou expect European-focused direct lending funds to raise in2021? 2020. According to our 2020 survey, only 25% deployed less than €300million in2019. Given the challenging conditions, 55%of managers deployed less than €300million in How much capital didyour fund deploy across 2020? 2020 50 30 40 20 2021 10 0 0% 6% <€10bn

€50-150m

2019 1% 3%

2020 31% €10-20bn 20%

€150-300m 15% 3%

2021 36% €20-30bn 37% 40%

€300-900m 44% 21% €30-40bn 26% 60% 22%

€900-1,200m 6% €40-50bn 16% 22% 80%

>€1,200m >€50bn 5% 6% 100% deployment willbuild on2020 figures. to improve, as 69%believe fund Survey respondents expect this change in2021? How doyou think this is likely to impact onfundraising in2021. coronavirus to have asignificant negative lenders are sanguine –only 9%expect With recent vaccine breakthroughs, direct affected by coronavirus in 2021? Do you anticipate fundraising to be

Remain unchanged Decrease Increase Signiﬁcant negative impact Positive impact Minimal negative impact 16% 4% 16% 27%

9% Creditflux Researcher Armitage Robin 69%

No impact 59%

Survey

Which region do you predict will offer the greatest opportunity for growth in 2021? Direct lenders look favourably on DACH, with almost one-third (29%) identifying the region as offering the greatest opportunity for growth in 2021. UK/Ireland has fallen a few spots (to 16%) post-Brexit, after the region was projected in last year’s survey to lead the way in 2020 (29%).

35%

30%

25%

20%

15%

10%

5% 0% DACH Southern Europe Nordics UK/Ireland Benelux France 2019 2020 2021

How much leverage at fund level did you see direct lenders How do you think this is likely to change in 2021? using in 2020? Following the 2020 survey, most respondents (64%) believe Replies were split this year: 27% of respondents saw 0x direct lenders will use the same amount of leverage in the year leverage at fund level, while another 27% saw 0.5-1x leverage to come. in 2020.

18% 27% 27%

9% 64%

19% 27%

0x 0-0.5x 0.5-1x 1-1.5x >1.5x Increase Decrease Remain unchanged

What was the leverage on your most highly levered deal How do you think this is likely to change in 2021? in 2020? Most respondents (68%) expect leverage to remain unchanged More than one-third of respondents report that the leverage from last year. This was also the case in 2020’s survey; however, of their most highly levered deal was 6-7x, continuing the trend few could have predicted such drastic changes in the market. from last year’s survey where 25% of respondents agreed. That said, 31% of responses saw 4-5x leverage in 2020.

4% 11% 14%

31%

18%

15% <4x 4-5x 5-6x 6-7x 7-8x >8x Increase Decrease Remain unchanged

21 22 © Creditflux/Debtwire European Direct Lending Perspectives opening covenant headroom. year’s survey, when 50%said was 30-40% their average level of a higher average level of This 30-40%. is aslight diponlast deals in2020: 39%saw 20-30% intheir deals, while36%saw Respondents were splitonopening covenant headroom for headroom for your deals during 2020? What has beenthe average level of opening covenant Nearly half of respondents had (44%) an average margin of 6.5-7.5% onunitranche facilities they issued oradvised upon in2020. What was the average margin onthe unitranche facilities you issued oradvised onin2020? had afirst loss/second loss structure. respondents said fewer than of 40% their unitranche facilities structure. This is amajor change from last year, when 46%of of their 2020 unitranche facilities had afirst loss/second loss A strong of majority respondents (81%) say that less than 20% 2020 had afirst loss/second loss structure? What proportion of your unitranche facilities issued during 4%

5.5-6%

<20% 19% 36%

6-6.5%

20-30% 24% 11%

6.5-7.5%

30-40% 81% 14%

7.5-8.5%

40-50% 39%

>40% 20-40% <20%

>8.5% 44% with afirst loss/second loss structure. expect to see achange inthe proportion of unitranche facilities Heading into the new year, most respondents (64%)donot How doyou think this is likely to change in2021? the last year. average level of opening covenant headroom for their deals in Most survey respondents (69%)report no change to the Has this changed inthe last 12months? 64%

Increase 69%

Decrease 14%

Remain unchanged 22% 15% 24% 16%

Remain Decrease Increase unchanged 4% Survey

What was the average cash margin on your deals during 2020? Most respondents (61%) say the average cash margin on deals in 2020 fit into the 5-7% bracket, with 7-9% following as the next most popular answer (32%). No respondents saw average cash margins above 9%.

7% 61% 32%

<5% 5-7% 7-9% >9%

What percentage of companies in your portfolio have waived What percentage of companies in your portfolio defaulted covenants or had a covenant holiday in 2020? in 2020? Almost all respondents (96%) claim to have had between More than half (52%) of survey respondents saw less than 2% 0-40% of companies in their portfolio waive covenants or have of companies in their portfolio default in 2020. Almost one- a covenant holiday in 2020. More than one-third (39%) say quarter (22%) were lucky enough not to suffer any defaults at all. 11-20% of companies in their portfolio have waived covenants or had a covenant holiday in 2020.

22% 26% 0-10% <2%

31% 11-20% 2-5%

21-40% 7-10% 4% 41-60% >10% 52% >60% Not relevant 9%

39% 13%

What has been the greatest challenge faced by the direct lending market as a result of coronavirus? For nearly half of respondents (47%), portfolio management was the biggest coronavirus-related roadblock. 22% say the lack of face- to-face interaction was their largest hurdle that could have led to difficulties fundraising, as was the case for 19% of respondents.

19% Covenant breaches in portfolio

Di culties fundraising

47% Lack of face-to-face interaction Lack of suitable-quality investment opportunities

Portfolio management – time and eﬀort spent monitoring companies & dealing with potential breaches 22% © Creditflux/Debtwire 6%

23 24 © Creditflux/Debtwire European Direct Lending Perspectives The dustisstilltosettle industry readies to bounce back from the dour times of last year Direct lenders and other experts give their prognosis for 2021 as the growing inEurope. of private credit and why we think the asset class willcontinue long-term strategy. Cases like this illustrate plainly the benefits of our close connectivity to the company and belief intheir loan onfavourable terms in2021. This was possible because company onapath to refinance the outstanding portion of the savings for Gannett, extended debt maturities and put the refinance around US$500 million of debt. The deal generated last year, Apolloworked withUS media company Gannett to situationsliquidity and capital structures. For example, late borrowers onpotential solutions to address their varying Should challenges arise, direct lenders can work with accelerates.activity will beagreat lending environment, particularly as M&A for some portfolio companies, but, overall, we think 2021 The latest European lockdowns willclearly beachallenge direct lenders, who are well positioned to fillthis void. markets pulling back intimes of stress. It’s aperfect storm for the benefits of direct lending, banks retreating and syndicated due inpart to larger funds being raised, greater education on the US market, including increased ticket size for deals. This is We expect COVID willcontinue to accelerate trends visible in kind of deal flow and pricing that risk accordingly. and leisure. As lenders, the challenges are sourcing the right industries impacted heavily by COVID-19, such as retail, travel business services and healthcare, while largely avoiding In 2020, lenders favoured defensive sectors such as telecoms, lenders. This seems set to continue inearly 2021. focused ondeploying new capital, driving appetite from direct PE sponsors largely dealt withinternal portfolio issues and deal flow volumes more than compensating for the H1plunge. of the pandemic inthe direct lending space, withincredible In Q4 2020, you could beforgiven for failing to find signs European private debt, ApolloGlobal Management Direct lender: Natalia Tsitoura, managing director and head of 2021 for direct lenders The conditions are right for astrong

funds and PE. and funds crisis well and increase inrelevance for its investors for future Direct lending as an asset class should come through this than previous opening quarters. these are intheir early stages, but itnow certainly feels busier sponsors’ needs. We had our first pipeline call and many of EQT/Bridgepoint team, withmore local offices able to address rebound interms of volumes, but also due to the enlarged ever quarter interms of deployment, partly due to amarket We remain bullish onnew deal flow. Q4 was our busiest- not fooling anyone but themselves using those adjustments. some of the creative COVID adjustments going on.Lenders are They can also see the ‘real’ portfolio health and cut through any interest payments? Have you breached covenants? tougher questions: What happened to leverage? Did you miss to adownturn oreconomic shutdown. Now, LPs are asking system, where lenders knew which ones were more exposed Companies were often assessed onasubjective traffic-light LPs appreciate the more granular, data-led assessments. taking onmore risk which is now manifesting. pitchbooks. Ifyou returned 10+%then, you were probably showing similar leverage levels and 8-10%returns ontheir managers. That was not the case ayear ago. Managers were of risk managers are taking and are able to differentiate the One positive takeaway is that LPs can really assess the level lockdowns, recoveries may take longer than expected. And withrecurring waves of COVID-19 infections and attendant vintages are not coming into this withan entirely clean portfolio. lenders withmeaningful funds and ontheir second orthird revenues, and that resilience has played out well. However, sectors, such as healthcare orsoftware withrecurring monthly or three years; we have invested around 85%indefensive It comes back to what you’ve been doing for the last two lending, Bridgepoint Credit Direct lender: Paul Johnson, partner and head of direct of portfolios ofThe story 2021 willbethe health Creditflux Reporter D’Souza Michelle

2021 outlook

Much time still to pass before dust Buying time to enable the recovery begins to settle of good businesses

Debt advisory: Patrick Schoennagel, managing director, Leverage provider: Arun Cronin, managing director, Houlihan Lokey Credit Suisse

By and large, private credit lenders have done well to navigate Some leverage facilities contain valuation haircuts based on the challenges of 2020. But new lockdowns could wreak havoc financial metrics such as a company’s debt/EBITDA ratio. These in a lot of portfolios, depending on how long the crisis persists. haircuts can be quite punitive in an environment where market dislocation, such as that engendered by COVID-19, has caused Many companies were able to get through last year thanks to debt/EBITDA ratios to spike in the short term. The application of government assistance, lenders being flexible and covenant these haircuts can cause facility loan-to-value ratios to become waivers. That said, there is going to be some fatigue with elevated, potentially triggering events such as cash flow sweeps lenders and, ultimately, instances of covenant breaches. and reducing cushions to event-of-default thresholds.

Good companies with reasonable balance sheets will have to We were able to work with our borrowers to provide borrowing have some tough discussions with their creditors depending base stability through this period of dislocation by waiving on how the current lockdowns evolve. Not many companies’ some features that were adversely impacting the borrowing leverage covenants, even when set as loose as they have been, base and to avoid LTVs under our facilities becoming elevated. will be able to withstand the pain inflicted by a year-and-a-half- We took this approach to give companies in the most long severe reduction in economic activity. impacted sectors time to recover – a good business does not automatically become a bad one because of lockdowns. We Companies that only have a financial covenant and not a have found that the underlying companies have generally had liquidity problem will have already been placed on the ‘OK’ list. adequate liquidity runway to survive the series of lockdowns The real focus in the next three to six months will be companies that have occurred. where a recovery was expected to have begun and that upturn is further deferred due to fresh outbreak of COVID infections There were signs of recovery in H2 2020, but the impact of and subsequent lockdowns. the second lockdown in Europe will again hurt earnings and increase leverage in certain sectors. However, we will not get It will be interesting to see which lenders have the organisational March financials until well into Q2 and, hopefully by that stage, wherewithal to continue deploying capital into new transactions COVID-19 vaccines will have been rolled out more widely and in the face of renewed uncertainty. It’s likely that several private companies’ revenue lines will have stabilised. credit providers will be preoccupied with portfolio matters, as these discussions take up a great deal of time. Lenders that New deal flow remains strong with a lot of private credit have several triage cases in their portfolio but are not big funds continuing to raise a levered and an unlevered sleeve. enough to have a separate workout team to address them will We remained active throughout 2020, doing our first post- likely need to take their foot off the pedal for new deals due to COVID facilities in late Q2. resource constraints. At the height of the pandemic, spreads blew out from the For all that, 2021 has opened with a robust pipeline. One factor low-to-mid 200s to the low 300s. They have now tightened to that has spurred UK activity is the upcoming budget, with many the mid-200s, depending on the manager and strategy. Other © Creditflux/Debtwire shareholders looking to sell quickly before any change in capital risk terms such as eligibility criteria, super senior tolerance gains taxes. However, the dust will only settle in around two and principal cash sweeps have also tightened slightly, but the years’ time when one can see longer-term fund performance. differences are not especially meaningful.

25 26 © Creditflux/Debtwire European Direct Lending Perspectives structures, it’s astep that enables enhanced credit analysis. no economic interest. Whether inunitranche orsuper senior distressed hold-out creditors to extract value where they have going to get what, and ithas made itabit more difficult for legislation has made things more efficient about is who For companies restructuring inthe UK, new insolvency that drought liquidity we had in2008. direct powder lending dry out there, means we donot have provide some of that more opportunistic capital, alongside the to sixmonths. The plethora of special situation funds that can that need some to liquidity get them through the next three companies: the ones that need to restructure and the ones There are really categories only two when itcomes to troubled about when the pandemic first struck, are less prevalent today. hoarding covenants, orliquidity terms that people were talking questions such as dividend levels and debt incurrence. Anti- Documentation remains focused ondeep underlying credit Pet food businesses were also popular last quarter. defensive sectors such as technology, healthcare and software. as an incentive to transact. Lenders remain interested very in increasingly competitive nature of M&A,so any dipwillact have historically of been wary burgeoning prices and the reduction inpricing to bolster existing portfolios. Sponsors significant levels powder, of dry will take advantage of any consolidation among asset orverticals. types PE firms, with the event of asustained period of impact, there willbesome Still, there remains astrong appetite for the asset class. In it difficult to identify needsliquidity in credit markets. Government intervention, which can mask certain issues, makes ratherliquidity than itbeing indicative of underlying issues. payment terms may beneeded to shore up counterparty remains uncertainty around supply chains and extended impact –auditors are taking longer to provide audits, there effectively. But it is difficult to see the precise naturethe of Overall, lenders seem to have managed their portfolios into 2021 as COVID-19’s impact endures. not to dooutside of arestructuring. This willno doubt continue positions orkickers to align interest, something that banks tend to their borrowers, using patient capital to take equity minority throughout H22020. They can also act as strategic partners loans, evidenced by their continued involvement inM&A and relative certainty of transactions versus syndicated bank placed to take advantage of this inthe case of bank inaction tighter regulation and lending practices. Direct lenders are best it did in2008, where many banks willbeincreasingly mindful of Uncertainty amid global markets favours private debt, much as Will &Emery Lawyer: Lawyer: types ofThe troubled two company Aymen Mahmoud, partner, McDermott

been more dialogue inthe space. a solution for. Each deal is different, but there has certainly investor base orother considerations they are to find trying moving out some assets into new vehicles, diversifying their either solving for the duration of the oldervehicles and and are looking at the secondary market as atool set – GPs took amore creative and active approach in2020 the buyers’ points of view. market volatility brought interesting some very valuations from which also trickled into private debt secondaries. Private adopting amore cautious approach to future allocations, volatility inpublic markets. Several LPs took a‘risk-off’ stance, secondaries market benefited. Deal flow was also drivenby lives, some LPs started taking aproactive view and the instead of buying and holding funds until the end of funds’ LPs started looking at their existing portfolios differently– and GP-led deals. direct lending space last year, both oldervintage LP stakes being said, we did see some interesting deals inthe European funds and that is also translated into secondary volumes. That been behind the US, there is asmaller universe of primary large part of that flow. However, given Europe has historically billion-US$10 billion, withdirect lending responsible for a Private debt secondaries volume for 2020 was around US$5 expect this trend to continue in2021. people who had previously not engaged inthe space. We in H12020, but we saw amarked uptick inenquiries from Following the volatility inpublic markets, deal flow alleviated and head of private debt secondaries, Tikehau Capital Private debt secondaries: Olga Kosters, managing director andup up Flow was low, but dialogue is onthe

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