European companies increasingly side-stepping banks for lending needs, says Deloitte

Out-Law News | 26 Feb 2014 | 2:16 pm | 1 min. read

Companies based in the UK, France and Germany are increasingly using non-bank lenders to access funding, according to professional services firm Deloitte's latest analysis of the market.

Deloitte's alternative lender deal tracker, which covers 32 non-bank lenders operating in Europe, noted a substantial increase in lending activity between the first and final quarters of 2013. It recorded 56 deals in the final three months of the year, compared to 18 between January and March 2013.

The report noted that an increasing number of UK household names, such as Caffe Nero and Phase Eight, were increasingly considering the alternative lending market for their finance needs over traditional banks. However, it said that the most notable trend was the growing share of the market held by companies in mainland Europe, where deals outnumbered those involving UK companies for the first time since Deloitte began tracking alternative lending activity.

"As the UK becomes a more competitive marketplace, US funders based in London are looking at Europe to buy debt and deploy excess liquidity from shareholders," said Fenton Burgin, Deloitte's head of UK debt advisory. "France has seen the second largest number of deals since the tracker started in Q4 of 2012, but we expect growth to come from the peripherals such as Spain, Italy, Portugal and Greece."

"Over the past five quarters, senior debt structure was used in 36% of European deals; while in the UK, the unitranche structure was dominant in 44% of deals, combining senior and subordinated debt into one instrument. Unitranche is significant as banks provide only a limited element of the debt. Whilst such private debt funds were initially focused on restructuring situations, we're now seeing alternative lenders become increasingly popular in mid-market buyouts," he said.

Combined, the UK, France and Germany have accounted for 86% of alternative finance transactions since Deloitte began tracking the market in the last three months of 2012, according to the report.

Alternative lenders include fund managers and insurers that raise debt funds from institutional investors. According to Deloitte, by offering tailor-made structures and greater flexibility to borrowers they can provide an attractive alternative to traditional leveraged bank lending. The report noted that bespoke deals were increasingly being used to provide 'event financing', for example during buyouts or refinancing deals.

Burgin added that these trends pointed towards alternative lenders becoming an increasingly important part of the financial market this year, on the back of strong merger and acquisition activity.