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European debt funds equitise record level of loans to PE-backed companies

Since 2018, European credit funds have fully or partially equitised at least 61 loans provided to companies backed by PE firms, according to ION Analytics’ Debtwire, which provides deal-making insights for leveraged capital markets professionals.

Of those 61 equitised deals, only five have been fully realised, leaving debt funds with 56 equity positions on their books at a time when exits are at a three-year low.

Debtwire’s new report analyses each transaction to form a clearer picture of key lenders and sponsors, as well as sectors and geographies with the highest levels of debt-for-equity swaps.

Prominent credit providers such as Goldman Sachs, KKR, and CVC Credit, among dozens of others, have participated in debt-for-equity swaps since 2018, taking full or part ownership of companies to which they had been lenders.

Last year saw a surge in debt-for-equity swaps, with at least 23 transactions taking place over a period in which interest rates reached the highest levels since the 2008-09 Global Financial Crisis.

According to Debtwire, the majority of equitised transactions recorded involved the private-credit arms of asset managers, while a minority of debt-for-equity swaps were carried out by CLO funds under their operations.

Most equitized loans were initially provided to private equity-backed companies, with only a handful of non-sponsor-backed transactions recorded, while consumer-related deals comprised the largest portion of swaps (more than a third of recorded equitised loans), with the industrials, business services, healthcare, and TMT sectors collectively accounting for the remaining majority of debt-for-equity swaps.

John Bringardner, Head of Debtwire, said: “For participants in Europe’s private-credit market, 2023 marked a record-setting year despite a dismal climate for M&A — the lifeblood of direct lending. In the background, elevated interest rates lifted private credit’s returns above private equities for the first time ever.”

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