Debt Market Monitor: Q1 2021

European economic outlook 

  • The first quarter of 2021 has been one of the most active in recent years, with 158 deals completed during the quarter vs. 73 in Q1 2020. LBO activity accounted for 56% of total transactions1 during this time
  • The strengthening economic outlook, rebound in business confidence levels, and promising vaccine rollout across Europe are driving a growing sense of optimism
  • This climate provides a supportive backdrop for the loan markets, which are further benefitting from the significant accumulated dry powder, leading to highly competitive processes and attractive leverage multiples and terms, in line with pre-Covid levels
  • We expect the increased deal activity from ‘Covid exposed’ credits to continue, with these ‘story’ credits better able to demonstrate their recovery path now that economies are reopening
  • Stressed refinancing activity is expected to remain elevated also, as many businesses navigate the unwinding of government support schemes and various payment deferrals over the coming months, alongside overleveraged capital structures and weakened cashflows
  • Activity through Q2 to Q3 is expected to remain strong across a full spectrum of deals including M&A, refinancings and stressed situations

LBO transactions per region covered

Percentage of deals accounted for by LBO transactions per region

Source: DC Advisory lender survey (April 2021)

UK highlights

  • UK deal activity in Q1 2021 was very strong with 64 transactions closed1, with both banks and direct lenders increasing their volumes materially over the prior quarter
  • Direct lenders remain the most active source of financing, aided by their significant funding capacity and portfolio managers looking to increase deployment rates
  • Although credit appetite remains bifurcated, direct lenders are showing appetite towards ‘story’ credits such as those in Leisure and Retail. Terms secured are typically wider and more restrictive than in the last 18 months
  • ESG remains a key focus area, with an increasing number of lenders addressing the topic as part of their IC submissions, and frequently offering ESG linked pricing ratchets
  • We believe the outlook for Q3 is positive, with the uptick in M&A, refinancing and stressed activity expected to continue. We also expect to see further recapitalisations, with sponsors taking advantage of the aggressive terms being offered to deliver returns ahead of a full exit

UK: by deal type

Deal volumes in Q1 2021 increased significantly as lenders continued to deploy capital following a depressed Q2 and Q3 2020. Although club deals returned to pre-Covid levels, unitranche volumes grew further and continued to represent the significant proportion of transactions

Source: DC Advisory lender survey (April 2021)

France highlights

  • We have observed an extremely robust Q1 2021 in France, with a high number of deals completed across various sectors
  • Deal flow is strong, with all lenders ready to fund good quality and Covid-proof assets. Leverage multiples are still high and pricing tight, almost in line with pre-Covid levels
  • Underwriting appetite is back among most banks, and there is still meaningful capital available on the private credit side, which underpins good conditions for sponsors and borrowers
  • Funding capacity amongst sponsors remains high, however, the number of opportunities has reduced due to Covid. This is leading to higher valuations, which we expect may trigger a number of opportunistic asset sales or refinancings
  • In the short term, we do not expect any major shift and the key milestone going forward will be focused on the return to pre-Covid normality and the ability of companies to repay any state guaranteed loans

France: by deal type 

Leveraged loan volumes continued to grow through Q1 2021 on the back of a strong Q4 2020, supported by a high level of LBO transactions and refinancings among PE backed companies

Note: (*) Refi denotes a refinancing, recapitalisation or transformative add-on

Source: DC Advisory lender survey (April 2021)

DACH highlights

  • Q1 2021 was one of the most active first quarters we have seen within the last couple of years, building on the strong momentum seen during the final quarter in 2020. This is attributable to the refreshed M&A activity supported by an easing of the lending environment
  • Accumulated dry powder which investors have raised in recent years as well as a more competitive lending environment, have increased supply and demand in the leveraged loan market
  • We have also seen an increase in number of club deals which may be due to the higher number of companies returning to the market with better visibility on how they can rebound, giving banks more comfort on risk assessment abilities
  • In our view, the uptick in LBO activity will continue into Q3 2021 as a bulk of buyout financings having lined up recently with terms and pricings approaching pre-crisis levels. Alongside the healthcare sector we expect technology and software related sectors to create further strong appetite for investors and lenders, including the digitalisation of the education sector

DACH: per nature of deal 

Leveraged loan activity has increased materially in Q1 2021, with 28 transactions compared to 13 in Q2 and Q3 2020, this momentum is expected to continue into Q2 2021

Source: DC Advisory lender survey (April 2021)


Benelux: by deal type

After the sharp rise in activity in Q4 2020, deal volumes slowed to 11 closed transactions in Q1 2021. This however, represents a stronger Q1 performance than in 2019 or 2020

Note: (*) Refi denotes a refinancing, recapitalisation or transformative add-on

Source: DC Advisory lender survey (April 2021)

Spain highlights

  • After a record-high number of deals in Q4 2020 (most of which were processes that had been launched before March 2020), we have seen a significant decrease in activity levels during Q1 2021
  • However, with the rollout of vaccination programmes and increasing visibility towards the end of the pandemic, we are seeing new processes being launched, with Covid-proof sectors such as infrastructure, agri-business and healthcare attracting strong appetites
  • Over the last quarter we have seen strong pressure to deploy capital and high levels of funding capacity among PE sponsors, when combined with limited new opportunities in the market, this has translated to very high EV/EBITDA multiples with activity concentrated in Covid-proof sectors such as education, infrastructure and healthcare
  • Debt funds have gained market share on acquisition finance situations, while banks remain more focused on managing their portfolios and processing government support schemes
  • Although capital structures are overleveraged, refinancing activity remains low as government programmes are being extended. As these programmes come to an end, we expect an increase in refinancing of distressed situations

Spain: by deal type

Activity levels slowed in Q1 2021 following a very strong Q4 2020, with 10 deals completed. This performance however, is in line with that achieved in Q1 2020

Source: DC Advisory lender survey (April 2021)

Italy highlights

  • The recovery and gradual re-opening of economic activities in Q1 2021 had a positive impact on lending activity. This was also driven by a strong increase of private equity deals given the high level of available capital and the low valuation multiples seen in Italy during 2020 compared to other European countries, attracting a variety of international investors
  • Between March 2020 and April 2021, government-backed funds such as the Italian Guarantee Fund for SMEs and SACE issued more than €170bn of additional credit lines to support enterprises cope with Covid-192. Similarly, Italian banks increased loans to non-financial corporates by 7.6% in February 2021 (vs 2020) and 7.3% in January 2021 (vs 2020), reversing the sharp contraction that has been visible over the last decade2,3
  • In general, private debt has become increasingly appealing for investors, being a sustainable and reliable financing source with several positive factors such as superior maturity yields compared to corporate bonds, lower default rates due to more detailed due diligence, and more variety in lending structures
  • Financing activities have grown sharply to provide financial support to PE firms, which has also led to a renewed interest in LBO/replacement transactions, with a particular focus on the manufacturing, life sciences, healthcare and technology sectors4
  • Government schemes have put many companies on life support, and may have potentially masked underlying issues4. Operating cash flows will need to ramp-up quickly which may be challenging for mid-cap companies, and may leave room for a potential intense period of refinancing and restructuring activity


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[1]  All data and data in the tables of this presentation has been collected via DC Advisory’s independent survey of 93 European banks  and direct lenders, which was completed in April 2021 (conducted across UK, France, Germany, Austria, Switzerland, Spain, Belgium, Netherlands and Luxembourg)

[2] AIFI Associazione Italiana del Private Equity: Private Capital Today in partnership with PWC news ‘The point of Sergio Zocchi, CEO of October Italy’, accessed via  on May 5 2021

[3] Reuters: ‘UPDATE 1-Italian banks boost corporate lending and domestic bond holdings’, accessed via on May 5 2021

[4] Deloitte: ‘Italy Private Equity Confidence Survey’, accessed via on May 5 2021