More Direct Lending Funds in Germany’s Loan Market
With €19bn of European high yield (HY) issuance since the start of 2015, the forecast is for another record volume year, reports Mergermarket. Credit Suisse expects HY issuance this year to hit €125bn – up from €103bn in 2014 – and for loan issuance to rise from €89bn last year to €110bn.
Mergermarket is hosting its sixth German merger and acquisition (M&A) and private equity forum in partnership with intelligence provider Debtwire. The role of direct lending funds in the leveraged buyout (LBO) market and the current structure of the high yield market are among the key themes under discussion.
“An increased number of direct lending funds are establishing themselves in the German loan market as demand for the product is increasing,” says Sarah Syed, Deutschland, Austria and Switzerland (DACH) reporter at Debtwire.
“There is a lot of liquidity in the market and traditional banking sources will need to become more competitive in their appetite to lend to compete with the flexible structures offered by direct lenders”
The forum partners report reports that the start of 2015 has been quiet in Germany, with the loan figures for 2014 flattered by a €3bn deal for Heidelberg Cement, according to Debtwire Analytics data. Loan issuance on the other hand has been eclipsed by bond issuance in the year to date. The last full year where bonds ended ahead was 2011.
“The European HY market was a tough environment in the second half of 2014, with little primary issuance, news-driven sell-offs and choppy trading, which has caused investors to be cautious in the year to date,” says Anneken Tappe, HY reporter at Debtwire. “But financing costs remain at all-time lows and money keeps pushing into the high yield market.”
“There is a rise in the number of large cross-border transactions, and those with euro and dollar tranches in which the euro portion is seeing much stronger demand,” adds Mathew Cestar, head of leveraged finance at Credit Suisse. “We expect the positive investing environment to continue as investors search for companies with skilled management, stable cash flows and strong credit stories.”
“Maximum volumes, low interest rates, easy covenants and great negotiating power on the corporate side gives borrowers unprecedented results during financing processes,” comments Arno Fuchs, chief executive (CEO) of FCF Fox Corporate Finance.