Debt transactions with alternative lenders in Q3 more than triple those in Q1

• £15 billion of alternative lender debt to target European mid-market in 2014

Alternative non-bank lenders are becoming increasingly mainstream, participating in 55 UK mid-market debt deals since October 2012. Of the 55 deals, 24 were in Q3 2013, over three times greater than the seven deals for Q1 2013, according to a new Alternative Lender Deal Tracker* from Deloitte.

More deals are on the way as Deloitte estimates that over £10 billion is raised by funds actively looking to invest in the European mid-market, with another £5bn of additional capital in the process of being raised.

Fenton Burgin, Head of UK Debt Advisory at Deloitte, comments: “The end of 2013 is showing very strong signs of activity for the alternative lending sector, as their bespoke structures and greater flexibility provide an attractive alternative to traditional leveraged bank lending. Ultra-low interest rates have left institutional investors chasing yield and as a result the European leveraged finance mid-market is moving towards a US model. There banks hold only around 7% of US leveraged loans, while banks still hold the majority of European leveraged loans.”

Burgin continued: “These debt funds have been established with highly experienced teams recruited by large asset managers looking to spend capital ahead of a broader economic recovery. Whilst such private debt funds were initially focussed on restructuring situations, we’re now seeing alternative lenders become increasingly mainstream in mid-market buyouts.”

“Companies and shareholders sponsors are finding the combination of greater flexibility, higher speed of doing deals and large hold levels a compelling proposition. In 2013, we have seen a number of household name UK companies’ using alternative lenders, including; The Trainline, Cath Kidston and Pure Gym Limited.”

Deloitte’s research shows that the majority of deals are leveraged buyout related, accounting for roughly half, and only nine deals did not involve a private equity owner. Importantly, so called ‘unitranche’ structures, where banks provide only a limited element of the debt, also accounted for almost half of the transactions.

Burgin concluded: “On the back of Deloitte analysis we envisage that alternative lenders will play an increasingly important part of the market as the M&A environment improves significantly next year.”

End

Notes to editors
* and related research

Deloitte’s Alternative Lender Deal Tracker compiles data and information on a confidential basis from over 20 subscribing, leading alternative lenders. On a quarterly basis, full data is provided to all subscribers and a summary report provided to market participants highlighting key market trends and developments.

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