Di­rect lenders eye Italy mar­ket share

The Star Early Edition - - COMPANIES -

AS LENDERS watch Italy lurch through a bank­ing crisis with dis­may, Sy­mon Drake-Brock­man at Pem­ber­ton Cap­i­tal Ad­vi­sors LLP is ready­ing his cheque book.

The Lon­don fund, along with a unit of Bain Cap­i­tal LP, is among those lin­ing up $50 bil­lion for lever­aged bor­row­ers in Eu­rope, in­clud­ing some shunned by tra­di­tional lenders, ac­cord­ing to es­ti­mates by Deloitte LLP.

As Euro­pean Cen­tral Bank (ECB) lim­its and the Ital­ian up­heaval curb risk ap­petite, di­rect-lend­ing funds are seek­ing a big­ger chunk of a mar­ket which grew by 37 per­cent last year to €145bn ($155bn), ac­cord­ing to data com­piled by Bloomberg.

“The re­cent bank crises open up new op­por­tu­nity for funds to take mar­ket share,” said Drake-Brock­man, man­ag­ing part­ner at Pem­ber­ton.

Guide­lines

Draft guide­lines on lever­aged fi­nance pub­lished by the ECB in Novem­ber rec­om­mend lenders avoid un­der­writ­ing deals where to­tal debt is more than six times a com­pany’s earn­ings.

The funds, beyond the re­mit of the ECB and cap­i­tal rules aimed at lim­it­ing risk, have in some cases dou­bled the amount of cash avail­able for di­rect loans.

Isti­tuto Cen­trale delle Banche Popo­lari Ital­iane SpA, which sells sup­port ser­vices to Ital­ian banks, tapped Bain and other di­rect lenders for €600m of fi­nanc­ing last year, said Tom Maughan, who runs Euro­pean pri­vate credit at Bain Cap­i­tal Credit LP in Lon­don, is tar­get­ing sim­i­lar com­pa­nies with spec­u­la­tive-grade rat­ings for di­rect loans.

“We can be more flex­i­ble and faster than banks when a com­pany needs fi­nanc­ing,” Maughan said. “Bank­ing reg­u­la­tion and the new lim­its on lever­age im­posed by the ECB favour the switch from banks to di­rect lenders for mid-sized com­pa­nies. It’s mostly hap­pened in the US, but there’s more to do in Eu­rope.”

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