As Europe recovers past the most damaging phases of the pandemic, debt market activity is buoyant. Appetite for the COVID-insulated sectors continues to thrive, but lenders are now also focusing on businesses transitioning from survival towards growth.
Since the onset of COVID-19, leverage levels in many industries have increased dramatically. To maintain access to a wide range of financing options, businesses need to quickly demonstrate compelling plans to bolster profitability and pay off their debts.
The latest edition of AlixPartners' bi-annual Mid-Market Debt Report covers more than 100 bank and non-bank lenders active in the UK and European mid-market (debt transactions valued up to €300 million).
AT A GLANCE:
- In H1 2021, activity levels exploded. Investors and lenders were desperate to deploy capital, and sellers finally took the opportunity to complete deals after significant delays due to economic uncertainty.
- Huge competition from sponsors and lenders in COVID-insulated sectors has led to significant valuations, high leverage levels and loosening of terms. The jury remains out as to whether these metrics will prove to be overly aggressive.
- Unprecedented levels of liquidity from governments and sponsors have been effective in ensuring that most businesses survived the worst periods of the pandemic. As this support tapers away, organizations will potentially need to find alternative sources of liquidity. This is likely to create opportunities for special situations funds.
- ESG is firmly on the agenda for banks and credit funds. An increasing number of terms are now tied to ESG criteria, which provide financial benefit for borrowers meeting sustainability targets and are a hard requirement for investors in numerous credit funds.