Europe’s alternative lenders benefitting from volatility

Non-bank lenders recorded 242 deals in the UK and mainland Europe in the whole of 2015, according to the latest figures from Deloitte’s Alternative Lender Deal Tracker. This represented a 9 percent increase on the 222 deals logged during 2014.

In the final quarter of 2015 there were 63 deals recorded, a 3 percent uptick on the 61 deals completed in the equivalent period a year earlier.

“There are signs we’ve reached a tipping point in the European debt markets, with greater scrutiny on increasing numbers of transactions due to current volatility,” said Fenton Burgin, head of UK debt advisory at Deloitte.

He added: “We see European credit markets remaining volatile with risk premiums staying higher than in 2015. This degree of caution from banks and institutional lenders is creating opportunities for alternative lenders further down the chain.”

Burgin also said that the mid-market looks particularly borrower-friendly as a result of around €38 billion of dry powder currently sitting on the sidelines and awaiting deployment by direct lenders.

In addition, the upper mid-market – which Deloitte’s report defines as between €200 million and €400 million – is now considered to be “wide open for direct lenders” which have increased their hold sizes to as much as €300 million in some cases. Previously, this part of the market was the preserve of syndicated and high yield bond transactions.

The report noted that, in the first quarter of 2016, Europe’s high yield markets were virtually closed, with investors significantly increasing their risk premiums for lower rated bonds. The yield on B-rated bonds increased from 6 percent in October 2015 to almost 8 percent early in 2016.

The Alternative Lender Deal Tracker compiles confidential data and information from over 42 subscribing alternative lenders. The tracker covers 629 transactions dating from the fourth quarter of 2012, which are primarily mid-market direct lending deals across Europe.