Private debt funds have for the first time snapped up a larger market share in Germany’s mid-market than banks, by being able to provide bank-style senior loan financings among other things, according to GCA Altium.
Debt funds providing senior loans at terms comparable to banks have successfully closed three financing transactions this year, said GCA Altium in its MidCapMonitor for the second quarter, boosting the total presence of debt funds in Germany to 56% and thereby reducing banks' share to just 44% — the lowest level since the firm started to record the data in 2012.
Last year, banks still led with a market share of 52%, versus 48% of financings from debt funds, which provided unitranche financings.
However, German banks' leading position as the main provider of senior loans is now fading as more debt funds — especially those backed by institutional investors with lower return requirements than certain funds — are able to provide senior loan financings at lower pricing versus unitranches, and in line with bank terms.
"Recently, we have observed that debt fund vehicles are set up backed by funding from, for example, insurance companies with lower return expectations," said Norbert Schmitz, managing director at GCA Altium.
"This enables those debt funds to structure 'real' senior deals at a pricing of 300-400 bps by themselves instead of just joining an existing bank club. Before, we only saw stretched senior vehicles by debt funds with a pricing expectation of around 500 bps, which we are counting as unitranches in our monitor as they are not competing with pure senior structures."
AkquiVest, for example — a €300 million mid-market fund backed by a large German insurance group — provided bank-style senior debt financings this year, backing deals for sponsor-backed firms such as GPE Group, MEDIA Central and European AV Group.
Schmitz said asset managers such as Allianz Global Investors, a subsidiary of German insurance giant Allianz Group, or Canadian pension fund CDPQ are increasingly allocating funds and resources to private debt strategies as they continue to grow into alternative assets.
"Whilst institutional investors’ allocation to private debt was relatively marginal five years ago, it is now an essential building block," says Damien Guichard, head of European private credit at AGI. "This phenomena is driven not only by the search for yield in a low-rate environment, but also by the diversification brought by the variety of private debt strategies out there, and the ability to pick the one that exactly fits your investment needs."
AGI, for example, announced in January the hiring of Adrian Grammerstorf from UniCredit SpA in Munich to grow the company's mid-market debt investment activity across Germany, Austria and Switzerland. More hires are expected, in addition to the firm's other mid-market presence in France. The team, which is part of AGI's €60 billion private markets platform, has invested more than €1 billion of European mid-market debt in recent years.
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