Photographer: Alessia Pierdomenico/Bloomberg

Moneymen With $50 Billion Heading Where Banks Fear to Tread

  • Direct lenders off ECB radar have more leeway to take risks
  • Italy is candidate for alternative loans as bank crisis rages

As lenders watch Italy lurch through a banking crisis with dismay, Symon Drake-Brockman at Pemberton Capital Advisors LLP is readying his checkbook.

The London fund, along with a unit of Bain Capital LP, is among those lining up $50 billion for leveraged borrowers in Europe including some shunned by traditional lenders, according to estimates by Deloitte LLP. As European Central Bank limits and the Italian upheaval curb risk appetite, direct-lending funds are seeking a bigger chunk of a market which grew by 37 percent last year to 145 billion euros ($155 billion), according to data compiled by Bloomberg.

“The recent bank crises open up new opportunity for funds to take market share,” said Drake-Brockman, managing partner at Pemberton. “The ECB is sending signals to the market that it intends to de-risk banks and take incremental steps to encourage them to slow down.”

Draft guidelines on leveraged finance published by the ECB in November recommend lenders avoid underwriting deals where total debt is more than six times a company’s earnings. The funds, beyond the remit of the ECB and capital rules aimed at limiting risk, have in some cases doubled the amount of cash available for direct loans.

Bain has boosted its leveraged-lending firepower by half in the past year to about $4.5 billion. Pemberton closed a 1.2 billion-euro direct lending fund in November and is targeting 1.5 billion euros for another fund. Europe’s market is still in its infancy, established about five years ago and with room to catch up with U.S. direct lending, which has grown over two decades, Drake-Brockman said.

Across the Atlantic, and Ultimate Fighting Championship offer recent examples of companies turning to private-equity firms for financing.

Read more: how KKR won loan deal away from Citi

There’s ample deal-making potential in Italy to fill a liquidity shortage, said Floris Hovingh, head of alternative lending solutions at Deloitte in London. Italy’s Banca Monte dei Paschi di Siena SpA, the world’s oldest bank, was forced to seek a state bailout after it failed to find enough takers for a share sale in December.

Istituto Centrale delle Banche Popolari Italiane SpA, which sells support services to Italian banks, tapped Bain and other direct lenders for 600 million euros of financing last year, said Tom Maughan, who runs European private credit at Bain Capital Credit LP in London. He’s targeting similar companies with speculative-grade ratings as candidates for direct loans.

“We can be more flexible and faster than banks when a company needs financing,” Maughan said. “Banking regulation and the new limits on leverage imposed by the ECB are favoring the switch from banks to direct lenders for mid-sized companies. It’s mostly happened in the U.S., but there’s more to do in Europe.”

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