European Debt Outlook

Q1 2023 Overview

  • The European liquid markets saw a bumpy first quarter as the ramp up in leveraged finance volumes, especially in January, was followed by a short period of volatility on the back of SVB’s collapse [I]
  • Nevertheless, loan and bond markets remained open and the rescue of Credit Suisse – and subsequent expectations that central banks would become more dovish – quickly restored a sense of relative calm to markets, leaving total leveraged finance volumes in Q1-23 at €23.6bn, the highest level since Q1-22 [II]
  • Notwithstanding the higher volumes, issuances were still very much dominated by refinancing and add-ons to fund platform M&A; while private credit, financing close to nine out of ten buy-out deals in Q1-23, remained the preferred market for acquisition financing absent reasonable syndication activity [III] for new deals
  • In the European mid-market, we observed a slightly different trend with deal volumes dropping for the third quarter in a row, with 168 issuances in Q1-23 i.e. 4% lower vs. Q4-22 (175 issuances) and c. 20% lower vs. Q1 prior year (211 issuances)*

2023 Outlook

  • Despite the mid-market remaining relatively insulated from the mini-banking crisis, subdued M&A activity, especially in the upper mid-market, is reflected in the debt market with fewer acquisition financings to date [IV] which, similar to the liquid markets, resulted in extensions and add-ons continuing to dominate deal tables
  • Whilst there is still plenty of dry powder given the slower pace of deployment, we observe private credit funds becoming increasingly selective in deployment. Fundraising in general, but especially for smaller fund managers or those with an insufficient track-record, has proven more challenging in today’s market [V]
  • As we commented in the last edition of the Debt Market Monitor, activity in the near term is expected to remain subdued and skewed towards A&Es and refinancings. Nevertheless, we expect deal activity to pick-up later in the year as the result of a general sense of improving stability by market participants, and GPs’ need to monetise
    investments
  • However, the scale of improvement remains dependent on potential additional central bank activity to fight (core) inflation, which has proven to be persistent in multiple European geographies [VI] [VII]

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References:

[I] LCD Q1 2023 European Quarterly Wrap https://www.lcdcomps.com/lcd/r/index.html?rid=20 

[II] LCD https://www.lcdcomps.com/lcd/r/index.html?rid=20&menu=Europe-Research 

[III] LCD Q1 2023 European Quarterly Wrap https://www.lcdcomps.com/lcd/r/index.html?rid=20 

[IV] LCD Q1 2023 European Quarterly Wrap https://www.lcdcomps.com/lcd/r/index.html?rid=20 

[V] LCD Europe’s Private Credit Firms Face Fundraising Challenge https://www.lcdcomps.com/lcd/n/article.html?rid=170&aid=12501458&viewTracking 

[VI] Office for National Statistics – Consumer Price Inflation, UK: April 2023 https://www.ons.gov.uk/economy/inflationandpriceindices/bulletins/consumerpriceinflation/april2023 

[VII] Eurostat / Euroindicators https://ec.europa.eu/eurostat/documents/2995521/16668127/2-17052023-AP-EN.pdf/624d29d7-5a2f-db4a-def2-f9deb1b8136a 

*Unless otherwise indicated, all tables, data and statistics provided in this piece, including with respect to deal activity, have been collected via the May 2023 DC Advisory Lender Survey, subject to the limitations of described below.
The May 2023 DC Advisory Lender Survey: (DC Advisory’s independent survey of 94 European banks and direct lenders. which was completed in May 2023 and conducted across UK, France, Germany, Austria, Switzerland, Spain, Belgium, Netherlands and Luxembourg (referred to herein as the “The May 2023 DC Advisory Lender Survey” or the “Survey”). Any such data, including league table data referenced herein is limited to the data provided by the Survey participants and is not meant to constitute definitive market data. The banks and lenders selected for the Survey are based on those that are most active in the market, and that DC Advisory interacts with the most. Accordingly, the Survey participants do not constitute an exhaustive list of banks and lenders who may have been active during the period addressed by the Survey. Comparisons to deal activity or other statistics from prior quarters or other periods are calculated by comparting the results of the Survey to the results from DC Advisory Lender Survey corresponding to the prior period, subject to the same limitations described above.)