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Jacco Brouwer, Managing Director and Head of Duff & Phelps’ European Debt Advisory practice, speaks to Private Debt Investor about the impact COVID-19 is having on European mid-market debt and how lenders and investors are responding to the current crisis.
The economic effect of the pandemic has substantially altered the focus and behavior of private market lenders and investors. Both the European Commission and the Bank of England’s predictions of a significant fall in GDP led to the launch of a host of state aid initiatives across Europe; however, this has also made it challenging to understand the short- and long-term outlook for mid-market private debt.
Jacco commented: “The ramifications for the private debt landscape will be substantial. Significant amounts of new debt are being incurred at a time of reduced profitability. The servicing and repayment of this new debt (within the three years for CLBILS) will rely on a steep post-pandemic recovery in trading that may not be the case for many businesses.”
Jacco added: “UK banks have been overwhelmed by liquidity and debt service deferral requests. Bank lenders appear to be supportive of existing clients, but there have been many instances where stakeholders, including sponsors, have been asked to share some of the burden. Looking at the longer-term availability of debt from UK banks, many are likely to remain focused on serving their existing clients and will have a reduced appetite for new relationships.”
“We expect lenders to maintain caution for at least the medium term. However, pockets of liquidity remain in mid-market debt, which has seen an explosive increase in the number of lenders since the last financial crisis,” Jacco concluded.
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