Josie Shillito

Always fond of a rebranding, (BSL in lieu of syndicated, private credit CLO instead of middle market CLO), the latest newspeak to hit private credit is the ‘uniPIK’, 2023 and 2024’s answer to the unitranche.

The ‘uniPIK’ refers to a piece of unitranche debt with a non-cash pay element incorporated from day one, rather than via a toggle — a piece of cash-pay debt paying 450bps with a further 200bps and a blended spread of 650bps. 

As with the unitranche, one lender provides the uniPIK and it is structured as one piece of debt as far as the borrower is concerned. Of course, this debt can be bifurcated on the lender side so as to come from different buckets in their own portfolio.

A debt adviser clarified: “Investors with a broad investment mandate are best-placed to structure uniPIKs.”

There is very little difference between a uniPIK and what is known as ‘PIK-out-the-gate’ (PIK active from day one) or ‘pay-if-you-can’, both of which have been around for some time, other than the branding and the agility of the single lender of record.

In fact, as a second source put it, “It’s basically like old fashioned mezz pricing but is structurally a single unitranche rather than having a subordinated PIK tranche.”

And a third source was even more adamant.

“Please don’t call it uniPIK!” they pleaded. “Nothing new here. First time I recall doing this was 2016.”

However, the birth of the term in the debt advisor community is relevant, because it reflects lenders’ increasing comfort with non-cash pay debt. 

Non-cash pay in all its guises it is on the rise. According to the first 9fin source, private creditors are becoming more and more comfortable with non-cash pay debt. In 9fin’s full year review of 2023, we observed PIK toggles, which allow borrowers to defer the cash burden of interest, disclosed in six of the 14 public-to-private deals in the UK analysed by 9fin for the year.

We also noted that private lenders are familiar with providing structurally subordinated debt like holdco PIKs alongside syndicated packages. One example was UK-based petrol station retailer EG Group’s refinancing including a PIK facility in November 2023. 

The uniPIK would not just supplement syndicated markets, but replace them by providing non cash-pay at the speed and flexibility for which private credit is known. 

This becomes of greater importance as we witness private credit deals being refinanced in the BSL markets. Last week, we pointed to energy consultancy Wood Mackenzie, and this week, among others, it’s Italian ingredients group IRCA that is turning to BSL to refinance a €975m unitranche provided in 2022 to finance Advent’s takeover in April that year. German intensive care service provider Deutsche Fachpflege is also looking to refinance €400m of private debt. 

Private credit does not yet compete with BSL on price. In the case of Wood Mackenzie, the BSL is talked at SOFR+375-400bps, compared to an existing unitranche of S+675bps. Deutsche Fachpflege’s €420m 2031 TLB is guided at E+450-475bps 98.5 OID.

However, private credit can compete by offering non-cash pay, while high-interest rates mean borrowers demand it. Why not take a product and give it a flashy new name? It worked, after all, with unitranche.

On that note, there remains heavy downward pressure on private credit pricing. In the BSL market, it’s raining repricings. According to 9fin analysis, €9.2bn of repricings have hit the European market this year so far, versus €2.1bn for the entirety of 2023, across 14 credits. 

Although the BSL market repricings have not yet resulted in a European private credit deal repricing yet, there are discussions between sponsor and lender on this matter. These do tend to be sponsor-led for now and, in the main, from US sponsors where these private credit repricing conversations are a little further advanced.

However, the pressure is coming through in new private credit deals. 

“Margins have gone down,” said the debt advisor.

According to the source, a UK deal was recently completed at 5.25x leverage and SONIA+575bps pricing (650bps through the PIK). Equally, a UK insurance sector business refinanced recently was done at S+525bps. Margins in the DACH regions and France, unsupported by sterling illiquidity, are going even lower, added the source.

“Last year, it was all priced in the high sixes and sevens, while this year it’s the five handles and sixes,” said the advisor. 

Now all we need is the primary market to kick off again and to see whether this lower pricing comes through in earnest.

A lot of deals are poised to come to market but, as of yet, the sound of IMs slapping onto desks or pens scratching as M&A advisors sign on the dotted line have not been heard. 

There’s no real answer as to why the trigger still is not getting pulled. “There’s still uncertainty around valuations,” a legal source said, repeating the 2023 line. 

Our European deal pipeline shows a groundhog day-style list of credits due to come to market, but behind the scenes there are many more we could write about, as soon as the sponsors pull the trigger.

To read our intel on the situations that should matter in Europe, from €5m EBITDA upwards, click here or email subscriptions@9fin.com.

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