UK Law and Practice Contributed by: Fergus Wheeler, Paul Yin, Tracy Liu and Medha Vikram, Latham & Watkins
sition financing transactions in Europe for the last few years. A notable development is the increasing collaboration between private credit lenders and banks. Despite competing for market share, both parties are find - ing common ground and working together on deals. One significant feature is the use of holding company (“Holdco”) financings, where private credit lenders provide financing at the Holdco level while banks syndicate a loan or bond at the operating company (“Opco”) level. This synergy allows both private credit lenders and banks to leverage their strengths, offering more comprehensive financing solutions to meet the diverse needs of borrowers. 1.4 Challenges Pricing remains a key pressure point in private credit transactions, given the competition from the syndi - cated market. In the European large-cap syndicated loan market, covenant-lite structures have become standard, especially in sponsor-led transactions. Private credit financings, which traditionally include maintenance covenants, are now shifting towards covenant-lite structures, particularly in unitranche and senior direct lending, as private credit funds increase their pres - ence in the large-cap leveraged finance market. This shift highlights private capital providers’ growing influ - ence and adaptability, as they innovate to meet bor - rowers’ needs and compete in the large-cap market. 1.5 Sponsored/Non-Sponsored Debt Private credit lenders are increasingly providing debt to both sponsor-backed and public companies. For non-sponsor-backed companies and public com - panies needing event-based funding, private credit offers certainty of funding and terms, unlike the high- yield and syndicated markets. Private credit funds are also typically more flexible when it comes to under - writing deals, which is highly valued by companies navigating complex financial situations. Features like the payment-in-kind (PIK) toggle allow deferred interest payments, adding financial flexibility. Private credit transactions also maintain higher confidentiality, which is crucial for sensitive transitions like public-to- private deals.
Operationally, private credit deals offer streamlined interactions, with borrowers typically dealing with a single lender, or a small group of lenders, for consents and amendments. This contrasts with the complex process of negotiating with large syndicates in the syndicated loan market, simplifying financing man - agement and enhancing adaptability to changing business needs. 1.6 Recurring Revenue Deals and Late-Stage Lending While earnings before interest, taxes, depreciation and amortisation (EBITDA)-positive businesses con - tinue to be the primary focus for private credit lend - ers, there is growing interest in the recurring revenue market within the UK and Europe. Private credit funds are increasingly allocating capital to pre-EBITDA busi - nesses. These funds are able to offer flexible financing structures tailored to the unique needs of these busi - nesses, accommodating their growth trajectories and cash flow patterns. These businesses, often in sectors like technology and subscription-based services, generate predict - able and stable cash flows through recurring revenue models. This financial predictability is appealing to private credit lenders, who can assess the potential for future profitability and growth, providing financing solutions that support these businesses as they scale. 1.7 Deal Sizes, Fund Sizes and Fundraising Typical Deal Sizes Jumbo deals Over GBP1 billion, provided by a “club” of private credit lenders, with major funds holding “anchor” por - tions (GBP500 to GBP750 million). Mid-cap GBP150 million and above, provided by a single pri - vate credit lender or “club” deals, with each holding GBP150 to GBP250 million portions. Typical Fund Sizes Private credit funds manage substantial capital, with sizes varying by strategy, market conditions and fun - draising success. Established lenders have flagship funds of more than USD10 billion, with mid-market or specialist funds ranging from USD2 to USD5 billion.
253 CHAMBERS.COM
Powered by FlippingBook