23 de abril de 2024 • 5 minute read

International Debt Finance Intelligence Report 2024

Adjusting to a new normal

Download our 2024 Report

Written by:Neil Campbell Matt Christmas Wolfram Distler César Herrero Gemma Lawrence Charlotte Lewis-Williams Sophie Lok Max Mayer Richard Normington Mei Mei Wong

Supplements

Net Asset Value financings

While net asset value (NAV) loans are not a new product, the continuing evolution and popularity of NAV facilities since COVID-19 has been frequently talked about – both in the market and the press – putting this product in the spotlight.

Venture and growth

Venture and growth debt finance remains popular. From some 35 recorded deals in 2012 to in excess of 350 last year, European initiated deals have shown consistent growth - are we witnessing the start of a new cycle?

Asset Based Lending

Amidst change and turmoil in an ever-evolving financing and economic backdrop, the attraction of (and the need to) fund with the backing of assets is of increasing importance. In this supplement, our ABL team take a look at what trends we expect to see for asset based lending transactions.

2023 – navigating the uncertainties

Sector focus

As expected in an uncertain environment, lenders have continued to focus on businesses in sectors that have less exposure to cyclical pressures and those that are capable of producing significant growth. Businesses with the ability to pass-through cost increases and with high cash conversion have been attractive in this market.

Market polarisation

“In France, large cap transactions have decreased sharply in 2023 and the syndicated market was almost completely closed but the mid-market held up well. There is still a strong polarity between sectors with fierce competition on quality assets in the health and tech sectors where valuations remain high even if lower than 18 months ago. The industrials sector is also very active compared to previous years.”

Sophie Lok, Partner, France

Market share movements

Despite the growing adoption of private credit, given the liquidity, flexibility and the speed of execution these solutions have to offer, in 2023 we’ve seen a shift of market share towards bank financings in some regions across Europe. We did see more activity from funds in the second half of 2023, although overall activity was down for the year.

One of the key factors that’s undoubtably contributed to this shift is the higher interest rate environment because a business can only support so much leverage/debt/cash interest.

Points of "interest" from 2023

PIK toggles

While central banks appear to have now brought an end to the cycle of rate-hikes, these rises were one of the biggest challenges affecting borrowers in 2023. A PIK toggle feature, however, enables a borrower, subject to various conditions, to elect to capitalise/compound some of the interest accruing on loans and add it to the principal outstanding, rather than paying the interest in cash.

Flexible financing

“PIK toggles have obviously been a common feature of private credit deals for some time now, but they have really come into keen focus over the past couple of years, as sponsors look to address significant increases in cash interest cost. We have generally seen private credit lenders be pretty accommodating, and willing to offer flexible solutions to allow assets (albeit good quality assets) some headroom to cash interest cost for reasonably significant periods.”

Neil Campbell, Partner, UK

How is ESG influencing the mid-market?

Momentum has been building in the mid-market around ESG. Lenders and investors continue to hardwire ESG considerations into strategies and credit processes. Mid-market corporates are also increasingly aware of the benefits of engaging with the agenda as sustainability credentials are more likely to have a bearing on their access to credit and its pricing. As a result, we are continuing to see ESG-related terms and approaches evolve and we expect the same will continue into the year ahead.

Outlook and potential market trends

Stress and work-outs

“We'll inevitably see an increasing number of 'the straw that breaks the camel's back' situations where an asset can no longer withstand the various pressures.”

Max Mayer, Partner, Netherlands

Corporate refinancings

“Whether or not borrowers elect to do a full refinancing or simply kick the can down the road with an amend and extend remains to be seen. It will be interesting to see how the balance of traditional bank vs private credit fund lending to corporates might shift, given the slowly recovering interest rate environment but also the political uncertainties anticipated over the course of 2024.”

Charlotte Lewis-Williams, Partner, UK

Liquidity - bridging the gap

“We expect a dual market where market participants will continue to focus on mid-market transactions and a deeper scrutiny of any prospective deal will be a must. Mezzanine financiers will likely gain back some momentum bridging liquidity gaps and, simultaneously, some work-outs and restructuring and refinancing processes will inevitably kick-off and run in parallel.”