Raising Finance

Highest volume of debt transactions with alternative lenders ever recorded

3 min read

29 December 2014

Alternative non-bank lenders recorded 73 deals in the UK and Europe for the third quarter of this year, up 109 per cent on the 35 deals in the same period of 2013. This is the highest volume ever recorded in Deloitte's 'Alternative Lender Deal Tracker'.

Deloitte estimates that European direct lending funds currently have €50bn of committed capital (which includes spent and unspent capital) for private debt and are looking to raise another €15bn in the next 12 months.

Fenton Burgin, head of UK debt advisory at Deloitte, said: “There is a growing recognition in lending that one size simply does not fit all. The outlook for alternative lenders is strong for 2015, based on significant capital raised this year. Other factors such as changing investor appetite in a low-yield environment and the improving economic activity in the UK and US economies will only boost this activity. Traditional lenders still face the challenge of capital shortfalls and increased regulatory demands on the allocation of what bank capital there is.

“Alternative lenders are also moving into continental Europe, with dedicated origination teams now in local European countries, and a record of 63 per cent of transactions outside the UK compared to 29 per cent in the third quarter of 2013.”

Furthermore, Floris Hovingh, head of alternative lender coverage at Deloitte, suggests that there is a sustained momentum in M&A, which is the largest source of deal flow for alternative lenders according to the deal tracker. 

“Separately, alternative lenders are increasingly unlocking M&A transactions for management/founder owned business looking for a viable alternative to equity when requiring growth capital,” said Hovingh.

“With the leverage loan and high-yield bond market cooled down, alternative lenders have an opportunity to team up in a club to lend to bigger companies on a direct basis without a bank’s involvement.

“Against the norm, Europe is now offering slightly cheaper pricing for borrowers compared to the US leverage loan market. Undoubtedly the European market is more insulated due to lack of M&A in Europe and the significant amount of debt funds raised in the last three years which need to find a home. Stateside, a significant part of the investor base active in leverage loans are listed funds. They have the ability to instantly withdraw capital when there is a sudden fall in global risk appetite, which has an impact on pricing. This is not the case in Europe as mainly ‘locked in’ capital dedicated to leverage loans invests in this asset class.”