The big news this week came from the US as yesterday (26 November) Citi and Apollo announced a landmark private credit and direct lending programme. This is aiming to reach at least $25bn worth of deals over the next five years.

The strategy will start in North America, “with the potential to expand to additional geographies,” the two stated, making Europe an obvious honeymoon destination for the future of the partnership.

This is the latest — albeit potentially the largest so far — in a series of private credit and bank tie-ups in the past couple of years. “The partnership between Apollo and Citi is yet another example of the rapid growth of private credit into mainstream finance,” said Ana Arsov, global head of private credit at Moody’s. Such combinations have been considered an opportunity for private credit firms to gain access to a broader number of companies while allowing bank clients to reach a new type of financing.

Apollo and Citi are focused on the upper middle market with the vast majority of investments expected to be in senior debt with the expectation that it will “significantly expand the size of the programme beyond the initial $25bn”.

Other recent cases have been catered more towards smaller deals. For instance, in July, Lloyds and Oaktree entered into a strategic partnership focused on UK middle-market sponsor-backed borrowers, with single name capacity of £175m per transaction.

Last year, Wells Fargo and Centerbridge Partners, established a strategic relationship also focusing on mid-size financing, but more towards “the large but underpenetrated non-sponsor US middle market companies,” with a minimum of $5bn in investible capital.

The forerunners of such tie-ups were Ares and GE Capital with their Senior Secured Loan Program formed back in 2007. SMBC and Park Square Capital are also veterans in the space and have run a joint venture since 2017 with more than 50 transactions together so far, Dan Matthews, head of EMEA leveraged finance at SMBC, said in a 9Questions interview in July.

“Banks are increasingly looking to play a larger role in direct lending and we expect banks and funds to continue to co-exist in this market,” Matthews said at the time. Banks benefit from having large balance sheets and the ability to leverage the products, services, and relationships across their wider organisations. So there are clear advantages.”

Repricing vibes

Is the battle of pricing on? Certainly in the LevFin space there is evidence of compression: a 9fin analysis explored how within the universe of European issuers, €4.27bn of loans has been repriced this month alone, alongside €4.95bn-equivalent in dollar loans, for a total of €9.22bn.

In private credit the evidence is so far more anecdotical, with opinion diverging among players 9fin spoke to, especially in the mid-market. But in the large cap space, Italian pharmaceuticals firm DOC Generici made a strong move, repricing its circa €900m unitranche with existing lenders.

A club led by HPS alongside Blackstone, CVC, KKR, Oak Hill and PSP has reduced the margin on the facility to E+550bps from E+650bps, 9fin sources said confirming a Pitchbook report. It was initially provided to finance TPG Capital’s acquisition from ICG and Merieux Equity Partners.

Earlier this year DOC Generici had been seen as a candidate for a private credit to BSL refi in 2024, but the direct lenders were able to win this battle.

Pricing competitions is not just between private credit and BSL. Last week, we saw HPS refinancing web hosting firm Miss Group, undercutting Ares’ bid to stay on the deal by around 100bps.

And earlier this month CVC priced the debt for French cybersecurity company  I-Tracing as low as E+475bps in the clearest sign yet of margin compression.

European private credit pipeline

The run towards year-end has started with a flow of potential deals hitting the market. The question remains over whether they will all complete, but for the moment the mid-market pipeline looks quite vibrant.

Auctions are on everywhere across Europe. In the UK, Livingbridge is selling independent insurance broking services provider Jensten Group. Deloitte is the sellside advisor, marketing the firm off a £44m EBITDA.

In Sweden CapMan is looking to sell software portfolio company PDSVISION, marketed off an EBITDA of around €20m. And in Germany Bridgepoint Credit is considering a sale of explosion protection firm Bartec which generates around €40m EBITDA.

Other deals have closed. Apera is providing a €45m unitranche for MML Capital’s buyout of Waste Vision, a Dutch smart waste solutions firm. And in France Blue Wolf Capital is close to acquiring pharmaceutical company Synerlab Group off €20m-€22m EBITDA.

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