It was not clear at publication what these terms were. However features typical of private credit deals in Europe are more demanding reporting standards (monthly as opposed to quarterly) and at least one covenant. 

The participation of two direct lending funds in debt originally destined for syndication shows that the dark days of 2022, when private credit came to the rescue of deals that did not succeed in the syndication market, are not far behind us.

“It’s a way — a new way — of trying to minimise syndication risk,” said a market source. 

And it could be the first of many. Ongoing market volatility is spooking bank underwriters and investors in loans. Enter a private credit fund that can take down a chunk of the debt, effectively ‘anchor’ it as an anchor LP in an investment fund might, then confidence is created. 

Envalior went on to be placed privately with a group of lenders including CLOs, without ever requiring syndication.

However, this way of minimising syndication risk effectively takes large deals like Envalior out of the market. Envalior’s private placement cut out dozens of hopeful buysiders. It also transforms the classic, widely-marketed syndication process into one where relationships are paramount. Much like private debt.

If adopted by more syndication-destined deals, it could change the structure of syndications, mused the market source. “You could have two tranches in a syndication — one for private credit anchors and another for everyone else. Yes, the arrangers and sponsor may have to adjust terms, even adjust price to shape it into more of a private deal, but they could just suck this up in order to get certainty.”

Access Group will-they-won’t-they continues

The Envalior process is indicative of many things — but most of all, of appetite. Another deal showing the depth of private credit’s hunger is business software provider Access Group, which has been in a protracted tussle over much of Q1 2023 over the documents in its proposed £500m add-on. 

The TA Associates and HG Capital-owned business is widely thought to be a good credit, with the existing club of lenders wanting to take part in the add-on, but finding themselves handicapped by the requirements to restrict their exposure to any one credit to single digit percentages. 

Then, the existing deal’s lack of covenant and some other ‘nasties,’ (words of a source who turned the deal down) have put off new private credit funds. According to the source, the deal has a 12-month MFN, affording scant protection to existing lenders, and the sponsor retains an ability to transfer all assets into a new entity should they want to, leaving lenders with little security. 

Despite this, it still looks like the deal will get done. “The value of the business is doing fine. There’s not a lot of deals out there,” said a source close to the deal.

The case for good deal, bad documents appears to be growing stronger.

HG Capital, TA Associates and Access Group did not respond to requests for comment.

What to do with all this paper?

Private debt dry powder is still high, topping $400bn as of December 2022, according to market data provider Prequin. Accompanying this dry powder is accelerating fundraising volumes among private credit’s various strategies such as mezzanine debt and secondaries. 

Mezzanine has seen a significant uptick in aggregate capital raised, totalling close to $35bn in 2022, compared with just over $10bn in 2021 and close to $30bn in 2020, says Prequin. 

Then, over in secondaries, fundraising is also accelerating apace. Asset manager Tikehau Capital plans to launch its Tikehau Private Debt Secondaries II fund in April, which has reached an early close of approximately $400m, and is targeting $1bn, according to a 9fin source. 

Meanwhile, investment manager Ares made a splash in last month with the announcement of its $1bn global credit secondaries joint venture with sovereign investor Mubadala. 

According to two secondary markets sources, LPs considering investing in primary market funds are increasingly being approached by secondary markets advisers touting generous clips from the same managers, but in secondary, at an attractive discount and at scale.

What can act as a deterrent in these cases is the LP’s capacity to underwrite a $400m secondary clip concerning eight managers. Most are not properly resourced, said the secondary market sources. Perhaps a greater number of partnerships like that of Ares-Mubadala could ensue in order to take advantage of these growing opportunities.

Meanwhile, speaking of excess paper, it would be remiss not to mention the large and public collapse of Carlyle’s buyout of healthcare tech business Cotiviti in the US, and a $5.5bn private debt deal with it. Although there is no indication that the deal fell apart over the debt component, it is safe to say paper earmarked for the largest unitranche in history must now find a new home. 

Also announced this week, CVC Credit has supported sponsor KKR’s acquisition of French insurance broker the April Group. In a perhaps unusual move, CVC Private Equity was the outgoing sponsor. It is unclear whether its credit arm was the incumbent lender and also supported its acquisition of April Group in 2019. The company had a turnover of €500m in 2021, according to the group press release. 

Then, Tikehau Capital has provided a €90m unitranche to support sponsor Ardian’s acquisition of Italian IT consulting services provider Assist Digital.

Forgotten something? Want your deal in here? Email me: josie@9fin.com