European Mid-Market Debt Update – Spring 2021

We are delighted to share with you our spring 2021 quarterly mid-market market update. In this issue, we present the results of our inaugural debt mid-market survey, tracking deals completed by over 50 leading European lenders in H2-2020. We also provide commentary on the strong rebound in deal activity, private debt fundraising and dry powder levels, insights into key trends in UK asset backed lending (ABL) and our initial outlook for the remainder of 2021.

Key Highlights

• A strong rebound in deal activity in Q4 2020, with deal count returning to pre-pandemic levels, albeit with a strong bias towards ‘defensive sectors,’ which accounted for approximately 70% of deals surveyed in H2 2020. 
• The pandemic has accelerated growth in market share held by private debt funds. 
• Reduced bank appetite for super senior RCFs, resulting in private debt funds increasingly needing to provide temporary solutions. 
• Despite pandemic inflicted lower private debt fundraising levels in 2020, direct lending dry power continued to grow to near record levels. 
• The UK ABL market was active, but predominately focused on existing clients, with 71% of deals being either refinancings or extensions and upsizes in H2 2020.

2021 Outlook

We expect an incomplete and uneven recovery in 2021 across geographies and sectors. While we expect lender appetite for more cyclical sectors to return, a short-term continuation of lender preference for defensive credits is likely. Overall, we expect the deal momentum from Q4 2020 to continue into 2021. However, we also foresee an uptick in distressed refinancings as unprecedented levels of government support come to an end and loan schemes require repayment. The increased focus on ESG (environmental, social and governance factors) by lenders and investors may cause a further imbalance between supply and demand of capital for certain sectors which may create opportunities for ABL and special situations lenders.