Investment in European direct loans on track for a record year
Investments by European direct – or non-bank – lenders are expected to reach record levels by year-end thanks to an increase in average loan amounts, but the number of deals is down, new study finds .
Direct lenders in Europe deployed 22.6 billion euros (£ 20 billion) in the first half of 2019, according to a Deloitte study.
Direct lending is a form of corporate debt granting involving private lenders providing loans to businesses without the assistance of intermediaries such as brokers. The private debt market has grown significantly in recent years as banks cut back on corporate lending following the financial crisis.
The report predicts that the total amount invested through direct loans will increase by 18% by the end of 2019, surpassing the record of 38.1 billion euros recorded the previous year.
“Direct lending is growing rapidly to become an asset class in its own right as some banks pull back from riskier lending,” said Floris Hovingh, head of alternative capital solutions at Deloitte.
A total of 178 direct loan agreements were concluded across Europe in the first half of the year, led by the UK, which saw 65 agreements concluded during the period. France had the second highest number of deals with 42, followed by Germany with 20.
In the 12 months leading up to the first half of 2019, 404 deals were closed, down 3% from the same period the previous year, which recorded 414 deals.
Investor interest in loans to European companies has increased significantly this year. Asset management firm Pemberton raised € 3.2 billion for a new direct lending fund in August, while Alcentra and Bluebay raised € 5.5 billion and € 6 billion respectively for direct loan funds earlier in the year.
The average amount of loans granted by direct lenders rose to 91.2 million euros last year, an increase of 46% from the 62.5 million euros recorded in 2016.
“The data shows that liquidity deployment is moving in sync with fundraising as fund managers write bigger tickets. This means that fears of a “surplus” of undeployed capital can now be ruled out, ”Hovingh said.
“However, the question remains whether direct loan yields will remain constant for the latest crop of billions of dollars plus direct loan funds,” he added.
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