Margins, Original Issue Discounts Tighten, Leverage Fell in Q4 European Direct Lending Market

KBRA DLD’s new market analysis finds yields on sterling-denominated debt outpacing U.S. direct lending market

KBRA DLD, a division of KBRA Analytics, recently released its inaugural European Private Data Insights and Outlook report on the direct lending market. The new quarterly analysis offers an unprecedented level of transparency on private credit terms in Europe including spreads, yields, fees, leverage, purchase price multiples, loan-to-value averages, call premiums, and more.

The report takes a deep-dive look at fourth-quarter 2023, as well as provides an overview of full-year 2023. The data is broken down and analyzed by a range of measures including currency, deal type, and sector.

M&A activity returned in Q4 2023 after a slow pipeline for most of the year. Buyouts accounted for 77% of euro volume in Q4 and 58% by count. Total leverage for buyouts inched upward for the first three quarters in 2023, then tightened to 4.3x in Q4. The regional breakdown in the dataset is broadly reflective of the wider market. The UK is the biggest contributor with France-based borrowers representing 8% of volume, just behind the 11% posted in the DACH region—Germany (D), Austria (A), and Switzerland (CH).

Although the UK dominates the $1 billion-plus jumbo private financing segment, jumbo loans to borrowers outside the UK are increasing, with six deals notched up for continental businesses in 2023. KBRA DLD News has been tracking $1 billion-plus jumbo financing (including add-ons) for European sponsor-backed issuers since the first issuance in 2020. In 2023, direct lenders executed more jumbo deals than in the previous three years combined.

The surge in 2023 was partly driven by volatile markets in 2022 that prompted sponsors to seek financing outside syndicated channels. Direct lenders are expected to continue to take share from liquid credit in 2024 by utilizing their flexibility to offer more bespoke terms and structures such as portability, and their willingness to finance dividend recaps as private equity firms seek ways to return equity to investors.

In line with KBRA DLD’s U.S. Private Data Research library, the European Private Data library will grow in outstandings via private data submissions, tracking terms on European direct lending deals on a quarterly basis.

Visit dld.kbraanalytics.com for more information on KBRA DLD and its offerings. Members of the media may contact Adam Tempkin, Director of Communications, for access to the report. Subscribers may log in to find the analysis on KBRA DLD’s Research page here.

About KBRA DLD

KBRA DLD was founded in 2019 and acquired by KBRA Analytics in 2022. The group focuses exclusively on the direct lending market, providing the private equity, lender, financial, and legal advisor communities with real-time news and a searchable database alongside proprietary data and analysis for the U.S. and European markets. KBRA DLD targets sponsored borrowers and specializes in cash flow-based structures including unitranche facilities across the lower middle market, traditional middle market and larger scale financings over $1 billion. In 2023, the group introduced the KBRA DLD Direct Lending Index, which serves as the foundation for our default rates and forecasts in the U.S. KBRA Analytics is a portfolio company of Parthenon Capital.

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