Market Wrap
Taking the Credit — Goodbye to spooky season?
- Alessia Pirolo
•4 min read
Welcome to Taking the Credit, 9fin’s weekly observations on the issues affecting the European private credit market. Find out more about what we do for private credit.
Trick-or-treat? Sinister images have been knocking at the door this Halloween. Gigantic funds amassing capital from LPs have left smaller new entrants facing nightmarish scenarios.
The uncertainty connected with next week’s US elections remains frightening — change is what scares investors the most, as a debt advisor admitted to 9fin.
At least, the spectre of taxes from the new UK government’s budget has been more benign than expected. From April 2025, the new tax rate on carried interest will be 32%, which is up from the 28% on the share of profits private equity managers buying and selling UK companies currently pay — but much less than the 45% they had feared.
With much instability at macro level, it might be early to call spooky season over, but a somewhat positive outlook came from our European Private Credit Review Q3 24 which ran earlier this week. M&A activity is expected to pick up — this time for real — in 2025, with at least 90 potential European LBOs currently in the market.
After all, December is at the door, and all we want for Christmas are deals.
Big (friendly?) giants
It shouldn’t come a surprise to 9fin’s readers, that size is one of the main trends to have emerged in the past few months, as our quarterly report has confirmed.
This year, a series of jumbo closings has brought the average size of funds to a new record high and this week was no exception. The latest big announcement is from Blackstone, which has amassed $22bn for its evergreen institutional direct lending fund, exceeding an initial target of $10bn.
Fundraising at the start of Q4 was already $110bn or 95% of the 2023 total volume of $116bn, according to Preqin data. With the new closings, levels are getting closer to the record highs of $145bn in 2021 and $133bn in 2022.
But the most impressive difference is how much dry powder is now in the hands of a relatively small group of large players: only 63 funds as per early October 2024 compared with the 195 funds that closed last year.
In short, the biggest are getting bigger. Just look at HPS Investment Partners. The direct lending giant might have considered an IPO valuing it at about $10bn, but at the moment the most probable future is with BlackRock. The world’s largest asset manager has emerged as the only serious candidate to take over the firm, Bloomberg reported, and a deal might be agreed by the end of the year.
Private credit fights back
This growth is fueling competition for larger deals.
Looking at our quarterly review, deal flow has been relatively stable. The total number of private credit transactions 9fin has tracked in the first three quarters was 494, down only 3% from 511 in the comparable period of 2023.
The main change is the average deal size. In Q3 24 it was €255m, up 40% quarter-over-quarter and about 15% from €220m in Q3 23. Large cap deals were up 30% compared to the same period in 2023, at 99, with private credit regaining market share over the syndicated loan market.
Margin compression also shows how competition is heating up, which follows the trend in the US. Large cap private credit deals so far in 2024 had an average spread of 540bps compared to 404bps on syndicated loans, our European Private Credit Review Q3 24 revealed. Overall, the average margin on first lien private credit instruments has fallen nearly 60bps in 2024 relative to last year, to 591bps from 650bps.
Europe pipeline
Once again, the private credit market has seen another busy week of deals as sellers hit the market ahead of year-end.
German family-owned supplements provider firm Orthomol is up for sale with Houlihan Lokey acting as a sellside advisor and total debt expected to be between €240m-€300m.
In the UK mid-cap market, the management team of chemical manufacturer Airedale Group is exploring a sale and Horizon Capital has kicked off the revived sale of IT services firm Sabio Group.
Among closed deals, a Sixth Street-led debt financing package for Blackstone’s buyout of Sediver stands out. The package for the glass insulator manufacturing firm includes a €300m unitranche composed of private Italian notes and a €50m revolving credit facility, with contributions from two additional lenders.
Additionally, private credit funds are very close to signing a €750m acquisition facility for International Schools Partnership.
Subscribers can read our weekly updated pipeline of new and in-market deals in the 9fin platform here. And if you’re a fan of this newsletter but aren’t yet a subscriber, email subscriptions@9fin.com for a trial.
