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Opportunities for alternative lenders in Ireland post Brexit

In this article, David Martin, a Director in Deloitte’s Debt & Capital Advisory team explores the potential for increased opportunities for alternative lenders in the Irish private business market.

The implications of the UK Referendum on Brexit on 24 June have yet to be fully recognised by Irish private businesses. The immediate effect of the vote was evident in the sterling exchange rate, which declined sharply against the euro and while the impact of Brexit on the UK economy is not fully appraised some economic commentators are predicting recession in 2017. In response, the Bank of England has cut interest rates for the first time in seven years and started a programme of quantitative easing as part of a £170 billion stimulus to try to prevent Brexit from tipping the UK economy into recession. 

Given Ireland’s close trading relationship with the UK (Ireland exported circa €15 billion of goods to the UK in 2015, representing 14 per cent of total exports, according to the Central Statistics Office (“CSO”) ), Brexit is likely to have a negative impact on Irish businesses relying on the UK market.

Deloitte Debt & Capital Advisory advise trading businesses, property acquirers and developers on maturing debt facilities, acquisition and growth facilities, accessing new debt markets, recapitalisations to facilitate payments to shareholders, off-balance-sheet finance and asset-based finance solutions.

While the appetite of both international and domestic banks to lend to those businesses exposed to UK is yet to be determined, a recent Deloitte/Alternative Credit Council in the UK report noted the potential for increased activity for alternative lenders as a result for Brexit. We believe this trend will follow in Ireland, with banks likely to be more selective in evaluating borrowers’ capacity to repay loans in the medium term as:

  • There will likely be continued volatility in capital markets affecting Irish banks
  • Regulatory/capital adequacy requirements on Irish banks are likely to remain stringent
  • Brexit is expected to have a negative effect on Irish exporters and tourism-related companies’ turnover/profitability
  • Alternative lenders who have capital locked in for Ireland seek to utilise these funds.

Irish companies exporting to the UK

Ireland’s exports to the UK vary significantly by sector.


UK € bn

Total € bn

UK Export Share





Beverages and tobacco




Crude materials




Fuels and lubricants




Chemicals and related products








Machinery and transport












(Figures as per CSO)

The main export sectors likely to be affected by Brexit are agricultural and food. Although the Irish economy has become less reliant on the UK in recent years, the UK still remains the largest export market for food producers. The UK accounted for 45 per cent of Irish food exports, valued at €4.5 billion in 2015. Brexit has, therefore, created major uncertainty and immediate price challenges for agri-food businesses.

Another sector likely to be affected by Brexit is hospitality. The Irish Hotels Federation (“IHF”) points out that 95 per cent of hoteliers, spoken to, are concerned about the result of the UK Referendum. The impact of Brexit and the resulting decrease in the value of sterling makes Irish holidays more expensive for British visitors; in addition, economic uncertainty and the threat of recession may make people more cautious about discretionary spending, such as holidays. To put this in context, in 2015, the UK market accounted for 41 per cent of overseas visitors, or 3.5 million visitors, which amounted to a direct spend (excluding fares) of €997 million, or approximately 0.5 per cent of GDP (CSO).

Impact of Brexit on banks

The Irish lending market is dominated by Allied Irish Bank, Bank of Ireland and Ulster Bank, who from a business lending perspective operate in the Small to Medium Enterprise (“SME”), Mid and Large Corporate lending markets. This is further augmented by Barclays Bank Ireland, Rabo-Bank and HSBC who tend to focus on the funding of larger corporates. Over the last number of years, activity has been high with the domestic banks creating specialist lending teams to focus on the hospitality, agriculture, pharmacy, healthcare, retail and motor dealership sectors.

Banks typically dominate the corporate debt market, with transactions of up to 2x Net Debt:EBITDA typically attracting lower margins with shorter tenors. Transactions attracting a Net Debt:EBITDA of greater than 3.5x are viewed as highly leveraged finance transactions, which will attract higher pricing and more restrictive covenants. Alternative lenders are active in this highly leveraged finance space.

Furthermore, the Irish banks are playing an active part in the funding of property acquirers and developers, albeit on a more restrictive basis than they had been pre 2007.

In the short to medium term, the result of Brexit is likely to mean that banks will pursue higher quality borrowers and more restrictive lending conditions until there is more visibility on what ramifications the Brexit vote will have on: (1) the turnover and profitability of Irish businesses, and particularly those with heavy exposure to UK customers; and (2) volatility in capital markets affecting Irish banks.

Impact and opportunity of Brexit on alternative lenders

The last number of years have seen an increase in non-bank lenders in the Irish market. This increased trend follows on from the UK and U.S. market where many private businesses would consider it the norm to deal with alternative lenders instead of, or in conjunction with, a traditional lender, such as a bank.

Typically, alternative lenders are operating in the unitranche facility space or stretched leverage space, which would typically see Net Debt:Ebitda in excess of 4x, which will attract margins in excess of seven per cent.

Alternative lenders in Ireland consist of a wide range of non-bank institutions with different strategies, including private debt, mezzanine, growth and distressed debt. Deloitte Debt & Capital Advisory has noted particularly strong activity over the last years from the likes of Activate Capital, AIB Specialised Finance, BBF Capital Partners, Bluebay Asset Management, Broadhaven Credit Partners, Cardinal Mezz Fund, Earlsfort Capital, Lotus Investment Group, Origin Capital, and the Ireland Strategic Investment Fund (“ISIF”).

The positives and negatives to dealing with alternative lenders versus traditional lenders is as follows

For alternative lenders in Ireland who have already locked in capital, Brexit should create further lending opportunities as banks are more likely to become more risk averse, particularly to sectors that rely significantly on the UK market. This is likely to be the case for both alternative lenders who lend to trading businesses and for property acquirers and developers.

Deloitte Debt & Capital Advisory have worked with the majority of the alternative lenders in the Irish market. Each of the alternative lenders demonstrate their unique appetite for different sectors. As many alternative lenders do not provide clearing facilities, we note the importance of trading businesses in particular maintaining their relationship with a bank, as well as an alternative lender. Thus, the potential rise of activity for alternative lenders is also likely to be an opportunity for banks to provide ancillary services to borrowers.

Over the last few years, more lenders have emerged in funding property developers, with Activate Capital, Lotus Homes and the Cardinal Mezz fund having concluded numerous transactions in the space. 

Furthermore, private companies without access to further shareholder funding lacked the ability to make transformational acquisitions. Bank lenders are typically not able to fund junior debt/quasi-equity risk and require a sizeable equity contribution from shareholders to fund growth. Alternative lenders see an opportunity to accelerate the growth of the company and exponentially grow shareholder value in a shorter timeframe.

We believe this trend is likely to continue, where their ability to execute quickly, be flexible on structure and access debt across the capital structure via senior, second lien, unitranche, mezzanine and quasi-equity provide property acquires/developers with additional capital that a traditional bank is unable to do, due to their regulatory and risk policies.  

This access to additional capital, aided by increased volatility as a result of Brexit, is likely to provide an opportunity for alternative lenders with flexible lending mandates.


While alternative lenders and banks often compete on transactions, we have seen and expect to see more cooperation on transactions between banks and alternative lenders. The recent Deloitte/ Alternative Credit Council survey found that two-thirds of alternative lenders use their relationships with banks to source credit opportunities, and use the banks as an important part of concluding transactions through the use of their ancillary services, including clearing accounts.

In conclusion, while Brexit has created uncertainty for many Irish private businesses, we believe increased capital available from alternative lenders is likely to provide a sustained capital base for Irish private businesses to meet their ambitions.

For more information please contact:
David Martin
Director, Debt & Capital Advisory
+353 86 8392658

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