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Private Credit 

Josie Shillito

Fin Strathern

There are no distressed situations in private credit, so runs the narrative, or at least not in my portfolio. And it’s hard to dispel this myth when the sponsor can put in additional equity, the lender can do debt for equity swaps, and the metaphorical can will be kicked down the metaphorical road without anyone really knowing about it. 

But from time to time, something has to go public, as seen with Swedish wall decoration company Desenio. And at this point, private credit funds fond of a trickier situation and the returns that go with it, can swoop.

Desenio is working with private credit funds on financing to save the company from an upcoming 1.1bn SEK (€94m) bond maturity wall. Based off a 11bn SEK valuation (€1.1bn at the time), share prices in the company have fallen 99.3% since going public.

It helps that Desenio, listed on the Frankfurt Stock Exchange, is a public company and it is therefore not difficult to lift the lid on its struggles. 

But there are a handful more private companies with a restructuring history, whose sponsors are finding that they have to sell. European Directories, up for sale by Triton Partners, is one example. 

The Finnish local search provider, at the first round bids stage, is being marketed off a €10-15m EBITDA with leverage at 6-7x, implying a debt package that could go just north of €100m. However, the company’s earnings have charted a fall from grace since earlier glory days in 2009, when the company’s EBITDA beat targets by €8m to hit €179m.

Buying an address book may not seem a way to make money, but Verdane Capital, Polaris Private Equity, and Accent Equity are all looking at the sale, according to 9fin sources. And the company has undergone a major transformation rebranding from a printed directory to a digital marketing provider through local search and lead generation services.

There does seem to be something in the water about online advertising and marketing, if the planned sale of Oslo-listed online advertiser Adevinta to Permira and Blackstone is anything to go by. The deal has attracted debt pitches of up to €4.5bn, although, to be fair, it has stalled with the investment committee over valuation issues. 

Private credit tranches in syndicated deals

Judging by the number of user enquiries inbound to 9fin, everyone wants to know about historical syndicated deals with private credit tranches. Which means that the market may be cooking up more dual-track deals than just the public ones of UK software provider IRIS Software and Adevinta.

Precedent private credit tranches in syndicated deals include IQ-EQ, Synlab and Cegid, although these are PIK tranches. Service station retailer EG Group has also just today (10 November) shouted about a $500m floating rate note (FRN) due 2028 (50% payment in kind) to be privately placed with two investors at S+750bps at a 97 OID. 

In terms of pari-passu tranches, the waters are muddied. There are anchor investments such as the debt backing the merger that created Envalior. 

Non-fungible add-ons like that of cable and communication company Altice’s €800m TLB is another clue. This tranche priced at Euribor+ 500bps but at an OID of 96, which would give a private credit yield. Search non-fungible in the 9fin global search and eat your heart out.

But, there is a drawback in private credit investing pari-passu in a syndicated deal, even with its own pricing and documents — and that is the mark to market. Should the syndicated loan start trading at 85 — a level not unheard of in today’s market — it would be tough for the private credit fund sitting in the non-fungible TLB or TLC to claim to its LPs that its slice of the loan is at par. 

At this point there is a real knock to returns, not to mention reputation. Of course, the returns in a non-fungible tranche are theoretical, and with a maturity of seven years, not many of these tranches have yet been repaid and felt the pain. But for some private credit funds, the risk of the mark to market is enough to say a firm no to private credit tranches in syndicated deals.

Moody’s is joining Fitch in providing private credit ratings and research. The spotlight on private credit is in part driven by the size of the market (that old $1.5trn figure again), but also the increasing entry of retail investors in this space. 

This entry is illustrated by the announcement of asset manager M&G’s €500m private credit ELTIF this week. The European long-term investment fund wrapper (ELTIF) is designed to give private investors (retail) access to private markets, including private credit. Having passed through a number of iterations, ELTIF 2.0 is generally thought to be workable and the number of ELTIFs is growing. (More on this to come on 9fin.com.) 

And Goldman Sachs has done a round of promotions in its private credit team - 12 members to managing director: Matt Carter in Dallas; Michael Kondoleon, Burke Loeffler, Andrew Snow, Jessica Tung, Dennis van Laer and Qing Li in New York; Pedro Panizo in Sydney; and Patrick Badaro, Alex Doell, David Fernandez Miguez and Michael Magee in London.

Private credit, everyone’s shouting about it. 

There are a number of new deals to add to the pipeline this week. A handful of stressed situations in the Nordic region that are appealing to new lenders to help them, more German activity in the software sector, and more upcoming lender education processes. There are also exclusivity agreements with sponsors across the continent but no debt as yet. Click here for the full named and detailed list of details, or subscribe to 9fin private credit by emailing subscriptions@9fin.com.

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