European debt funds have equitized a report degree of loans to non-public equity-backed firms however most are struggling to exit these investments, new analysis has discovered.
Debtwire evaluation confirmed that since 2018, European credit score funds have absolutely or partially equitized not less than 61 loans supplied to non-public equity-backed firms.
Nonetheless, of these 61 offers, solely 5 have been absolutely realized, leaving debt funds with 56 fairness positions on their books at a time when exits are at a three-year low.
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A debt-for-equity swap is a refinancing deal by which the debt holder will get an fairness place in alternate for the cancellation of the debt. These offers are sometimes finished to assist a troubled firm proceed to function.
Goldman Sachs, KKR and CVC Credit score are among the many credit score behemoths which have participated in debt-for-equity swaps since 2018.
Final yr noticed a surge in exercise, with not less than 23 transactions going down, Debtwire discovered.
Learn extra: Moody’s: Non-public credit score returns may fall this yr
“For individuals in Europe’s personal credit score market, 2023 marked a record-setting yr regardless of a dismal local weather for M&A – the lifeblood of direct lending,” mentioned John Bringardner, head of Debtwire.
“Within the background, elevated rates of interest lifted personal credit score’s returns above personal equities for the primary time ever.
“Non-public credit score proponents tout its potential to supply versatile options for debtors, however when company misery strikes, direct lenders nonetheless typically find yourself taking up the enterprise. As loans issued in the course of the ‘golden age of personal credit score’ start to mature, we anticipate to see extra various asset managers swapping their debt for fairness – and on the lookout for methods to exit these investments.”
The vast majority of equitized transactions concerned the personal credit score arms of asset managers, Debtwire discovered, whereas a minority have been carried out by their CLO funds.
Learn extra: Non-public debt diversifies from direct lending
Most equitized loans have been supplied to non-public equity-backed firms, with only some non-sponsor-backed transactions recorded.
Client-related offers made up greater than a 3rd of the offers, with the industrials, enterprise companies, healthcare, and TMT sectors collectively accounting for the remaining majority of debt-for-equity swaps.
