Debt Market Monitor Q1 – Q3 2020

European economic outlook:

European deal activity has dropped significantly between Q1 and Q3 2020, as pandemic uncertainty meant only 167 deals completed compared to 319 completed deals in the same period in 2019.*

However, we have seen growing momentum in the second half of the year with a 69% increase in deals in Q3 compared to Q2 - triggered by the end of the first round of regional lockdowns in Europe and some stability returning to the market after a period of uncertainty.* We believe the uptick in activity has been led by an increase in M&A deals with sponsors shifting focus and resources towards origination and deploying capital that had otherwise been dormant while the financial impact of the pandemic played out.

The primary activity during this period has come from lenders that either have smaller defensive portfolios, or have sufficient resources to focus on both existing portfolios and new business activity.

Direct lending activity has proven much more robust during this period, capturing an increased share of volumes in certain regions – in the UK for example, unitranche transactions accounted for 73% of deals in Q1 to Q3, compared to 56% in the same period in 2019.*

LBO Transactions per region covered

Percentage of deals accounted for by LBO transactions per region*

UK highlights

  • It is clear to us that renewed M&A activity and refinancings have driven the recent rebound in volumes in Q3, with lenders and sponsors shifting focus and resources towards origination
  • We believe there is strong lender appetite for businesses who have proven Covid resilient and that is focused on the fund market where there is dry powder to deploy
  • Resilient sectors such as healthcare and software therefore continue to attract strong demand, and certain assets have been able to secure pricing and terms in line with pre-Covid levels
  • Notwithstanding lockdown 2.0, we believe markets for resilient pandemic-proof credit remains very strong - with deals still getting done with aggressive leverage

UK: by deal type

Source: DC Advisory lender survey (October 2020)

After a strong start to the year volumes dropped sharply in Q2 and only partially recovered in Q3, there were a total of 18 deals across Q2 and Q3 compared to 64 in the same period in 2019. The proportion of unitranche deals continues to grow, accounting for 73% of deals in Q1-Q3 2020 compared to 56% in Q1-Q3 2019*

France highlights

  • On the one hand, we have seen many companies recently raise a French state guaranteed loan in addition to their existing debts, and on the other, their business has underperformed in 2020. As a result, we believe many companies are over leveraged and may need to amend their covenants
  • With higher visibility on the impact of Covid-19 on FY20/ 21 financial performance, it is clear to us that many sellers have launched sales processes, taking into account Covid-19 considerations such as EBITDA adjustments and a focus on the robustness of the business model etc.
  • In our opinion, the French market is still active on both the equity and debt side driven by a high amount of dry powder to deploy
  • In our experience, both private debt funds and sponsors are more selective on businesses with a preference for proven pandemic resilience, although are still willing to show strong interest in other businesses if they like the business and its underlying market with an ability to pre-empt it 

France: by deal type

Source: DC Advisory lender survey (October 2020)

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

After a dynamic Q3 and Q4 2019, French leveraged loan volumes fell significantly through Q1 to Q3 2020. Whilst Q2 2020 volumes were down by more than 65% YoY, Q3 2020 saw a moderate uptick in activity. LBOs has been the primary driver during 2020, accounting for 70% of total activity*

DACH highlights

  • Since the extreme market disruption in March, we have seen the LBO markets show strong ongoing recovery in the Q3
  • This recovery is driven by a mix of government support and investors’ interest for companies with access to liquidity – particularly in pandemic-proof sectors. Consequently, bank lending has improved again, albeit with lower tickets and larger bank clubs
  • By contrast, we believe companies with complicated supply chains and exposure to consumer behavior have proved most vulnerable
  • Since the start of the Covid-19 liquidity programme in March 2020, KfW has received 96,341 loan applications totaling more than EUR 55.8bn.1 As of time of writing, the programme is due to expire at the end of June 20212
  • We have witnessed pipelines improve considerably going into Q4 but with the awareness of a potential ’second wave’ and the associated restrictions that may follow

DACH: by structure

Source: DC Advisory lender survey (October 2020)

Deal volumes across all structures have reduced compared to the prior year, impacted by COVID-19. Club deals have shown a more pronounced drop off, down 68% YTD whilst unitranche deals have fared better, down 24%. Q3 did however see a recovery in bank lending activity*

Benelux: by deal type

Source: DC Advisory lender survey (October 2020)

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

2020 deal activity was initially impacted by the COVID-19 pandemic with only 2 deals in Q1 compared to 5 in Q1 2019. Activity levels have however rebounded during Q2 and Q3, with a notable increase in refinancing, recapitalisation and transformative add-ons. Nevertheless, activity levels remain depressed compared to 2019, with YTD volumes down 38%*

Spain highlights

  • We have seen the second wave and the recent implementation of regional lockdown generating even higher levels of uncertainty in the market
  • The government support schemes are still in force. Nevertheless, for the most affected sectors such as tourism, leisure and retail, state relief may not be sufficient3
  • We have seen growing concerns of a solvency crisis, with many companies starting to accumulate losses further exacerbated by progressively overleveraged capital structures
  • With most government support schemes (ICO) deals structured with an amortizing scheme (including a one-year grace period), and the apparent difficulty of extending maturity or granting another year’s grace, we believe refinancing deals are expected to sharply increase in Q1/Q2 21 as maturities draw near and debt servicing increases
  • We believe conditions for the ICO loans may need to be revised in the coming months to allow for additional terms flexibility and avoid a spike in defaults in 2021
  • Debt funds and equity deals are expected to play a more relevant role in the mid-term

Spain: by deal type

Source: DC Advisory lender survey (October 2020)

Deal volumes are down 31% YTD compared to 2019. Q1 and Q2 activity levels were broadly split between LBOs and refinancing, recapitalisation and transformative add-on activity. Q3 saw a marked recovery in LBOs with 10 deals comparable to the peaks reached in Q3 and Q4 last year*

Italy highlights

  • We believe SACE-guaranteed loans are partially solving corporate liquidity shortage issues. Additionally, there has been a move towards a relaxation of debt collection procedures, with signaling of risky borrowers to Bank of Italy’s central database (Centrale Rischi) suspended
  • Though we have seen private equity activity slow, the industry saw an upward trend for leverage and EBITDA multiples in LBOs. Sponsors with dry powder however remain very active, looking for the right opportunity
  • Official news on NPE levels has not been released yet, but according to Banca Ifis there will be a c.7% increase in NPE stock and an upsurge in Non-performing loans (NPL) volumes.4 Furthermore, due to the slowdown of NPL recoveries, Bank of Italy announced a rigorous control on servicers managing NPL portfolios5
  • YTD to Aug 20, the deal value of private debt transactions (including direct lending, corporate loans and loan securitisations) was c. €8.4bn6
  • Industrials, Technology and Software, Manufacturing and Food & Beverage companies were the top targets for private lenders, accounting for c.43% of total lending in H1 20. Although the number of deals was higher in H1 vs. PY (138 vs.103) lent capital decreased 21% (to €423m)7
  • We believe that the increase in the number of private lenders' operations is a very good sign. At the same time, however, the reduction in the amount lent is an indicator of some precaution on the part of private lenders



(*) All data in the tables in this presentation has been collected via DC Advisory’s survey of the European lenders listed in such tables

  1. KfW-Corona-Hilfe 2020, accessed via: (as of November 12 2020)
  2. Press release KfW, accessed via: (as of 6 November 2020)
  4. Market Watch NPL: NPL transactions and NPE stock in Italy: flash update April 2020 (page 2)
  5. PWC: The Italian NPL Market: Ready to face the Crisis (page 3) & KPMG: GACS Securitisation deals in the Italian NPL space: Key evidence, new regulatory framework and market expectations for 2020 (pages 2,11)
  6. “Salgono raccolta, operazioni e rimborsi del private debt in Italia, ma scendono gli investimenti. Lo rilevano Aifi e Deloitte” accessed via BeBeez, available at attachment “Private debt Italy”
  7. “Salgono raccolta, operazioni e rimborsi del private debt in Italia, ma scendono gli investimenti. Lo rilevano Aifi e Deloitte” via BeBeez available at attachment “Private debt Italy”