UK Law and Practice Contributed by: Fergus Wheeler, Paul Yin, Tracy Liu and Medha Vikram, Latham & Watkins
The rise in Holdco/junior financings highlights collaboration between syndicated and private credit lenders, offering comprehensive solutions for large debt amounts. Jumbo Holdco financ - ings have emerged, with private credit funds forming “clubs” to provide more than GBP1 bil - lion financings, pooling resources and sharing risk. This showcases the private credit market’s adaptability and innovation in meeting complex sponsor and borrower needs. Comparatively, the preferred equity market in Europe is still developing. While it offers flexible capital and equity-like returns, it hasn’t reached the scale of junior financings. As the market evolves, growth opportunities may arise in pre - ferred equity as sponsors and investors seek diverse financing options. 1.6 Sponsored/Non-Sponsored Debt Private credit lenders are increasingly providing debt to both sponsor-backed and public compa - nies. For non-sponsor-backed companies and public companies needing event-based fund - ing, private credit offers certainty of funding and terms, unlike the high-yield and syndicated mar - kets. Private credit funds are also typically more flexible when it comes to underwriting deals, which is highly valued by companies navigating complex financial situations. Features like the PIK toggle allow deferred interest payments, adding financial flexibility. Private credit transac - tions also maintain higher confidentiality, which is crucial for sensitive transitions like public-to- private deals. Operationally, private credit deals offer stream - lined interactions, with borrowers typically deal - ing with a single or small group of lenders for consents and amendments. This contrasts with the complex process of negotiating with large syndicates in the syndicated loan market, sim -
plifying financing management and enhancing adaptability to changing business needs. 1.7 Recurring Revenue Deals and Late- Stage Lending While earnings before interest, taxes, deprecia - tion and amortisation (EBITDA)-positive busi - nesses continue to be the primary focus for private credit lenders, there is growing interest in the recurring revenue market within the UK and Europe. Private credit funds are increasing - ly allocating capital to pre-EBITDA businesses. These funds are able to offer flexible financing structures tailored to the unique needs of these businesses, accommodating their growth trajec - tories and cash flow patterns. These businesses, often in sectors like technol - ogy and subscription-based services, generate predictable and stable cash flows through recur - ring 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 sup - Over GBP1 billion, provided by a “club” of pri - vate credit lenders, with major funds holding “anchor” portions (GBP500 to GBP750 million). Mid-cap GBP150 million and above, provided by a single private 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 port these businesses as they scale. 1.8 Deal Sizes, Fund Sizes and Fundraising Typical Deal Sizes Jumbo deals
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