Wed, Sep 29, 2021

European Mid-Market Debt Update - Autumn 2021

Record Levels of Deal Making Despite Ongoing Pandemic
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We are pleased to share our latest debt market update. In this issue, we present the results of our debt mid-market survey, tracking deals completed by over 55 leading European bank and non-bank lenders in H1 2021. We also provide trends prevailing in the European debt mid-mid markets, including insights into key trends in UK asset-based lending (ABL), as well a market outlook for the remainder for the year.

Key Highlights
  • M&A continues to drive record levels of debt capital deployment. Q1 2021 in particular saw a record number of mid-market debt deals, up 130% from on Q2 2020 which was a low point for deal volumes. Survey results show that 73% of mid-market leveraged loan deal activity was M&A related, continuing on the strong trends from summer 2020 onwards when debt markets recovered from the pandemic.
  • Debt funds continue to provide the lion’s share of debt capital deployed. Debt funds continued to have strong appetite for deployment, with familiar names leading the charge in terms of deal count. Traditional banks showed some renewed appetite for leveraged loans, fuelled on by optimism that the worst effects of COVID-19 are behind us.
  • Defensive sectors continue to dominate deal flow in H1 2021. However, compared to H2 2020, data suggest an increased appetite for COVID-19 impacted sectors, notably in the manufacturing, industrial and engineering sectors.
  • Dry powder levels remain robust but decreased from H2 2020 for all strategies except direct lending. New capital is being directed mainly towards less risky debt strategies as the market has not yet witnessed the major flow of distressed debt opportunities expected as a result of the pandemic.
  • Significant increase in UK ABL deal activity, up 48% compared to our H2 2020 survey. Deal activity shifted from refinancings/extensions to new client deals, and activity was predominately focused on the sub GBP 20mn segment.
  • Unprecedented levels of COVID-19 government support (with loan schemes in the UK, France, Germany, Spain and Italy alone representing more than EUR 600bn), resulted in historically low numbers of corporate failures. In the UK, insolvency levels were down 55% on H2 2020. 


Outlook for remainder of the year

In the short to medium term, we expect the strong M&A driven deal activity is likely to continue. Lenders may be more selective in the deal processes they participate in, managing internal resources and navigating the sector and country exposure levels in their portfolio. However, as the COVID-19 government support initiatives comes to an end and various loan schemes have to be repaid, we anticipate an increase in the number of restructurings and distressed refinancings. ESG will continue to be a topic of focus, as market participants continue to advance ways to factor ESG into financing economics and loan documentation.

Corporate Finance and Restructuring

M&A advisory, restructuring and insolvency, debt advisory, strategic alternatives, transaction diligence and independent financial opinions.

Private Capital Markets – Debt Advisory

Kroll has extensive experience raising capital for middle-market companies to support a wide range of transactions.

Distressed M&A and Special Situations

Kroll professionals have advised hundreds of companies, investors and other stakeholders at all stages of distressed transactions and special situations.

Mergers and Acquisitions (M&A) Advisory

Kroll’s investment banking practice has extensive experience in M&A deal strategy and structuring, capital raising, transaction advisory services and financial sponsor coverage.

Transaction Advisory Services

Kroll’s Transaction Advisory Services platform offers corporate and financial investors with deep accounting and technical expertise, commercial knowledge, industry insight and seamless analytical services throughout the deal continuum.

Financial Sponsors Group

Dedicated coverage and access to M&A deal-flow for financial sponsors.