Belgian mezzanine financing comes out of the shadows

The shadow banking industry in Belgium is still an immature market. Until recently, the only options for SMEs in the country were mainly private equity, bank loans or internal savings. "If you look at a company in Belgium and see the way it is financed – I'm talking just debt – about 90-95% will be bank debt," says Joris Claeys, a managing partner at Belgian mezzanine provider Capital@rent.

Despite this huge reliance on bank loans for Belgium's SMEs, banks in the country began to slow down their lending to companies following the financial crisis. As banks attempted to reduce risk, SMEs were denied further loans from their lenders and were largely unaware of their options outside of having to sell company equity in the face of being unable to secure bank debt.

At the same time, the few providers of mezzanine financing that had been operating in the country, primarily coming from London, Paris and Scandinavia, began to disappear from the market, leaving a significant gap in Belgium's mezzanine financing landscape.

The alternative scene
But from this desolate climate, an alternative lending landscape is slowly emerging in Belgium. "There is growing interest in alternative forms of financing in Belgium," says Claeys. "A lot of Belgian companies are being confronted with a situation of when they need finance, they go to the banks and those banks are just not able to provide them with what they did before."

In March, Capital@rent and PMV announced a new mezzanine fund, Mezzanine Partners 1, which the firms claim is Belgium's first private debt fund focused solely on mezzanine lending. "Before, companies thought the only alternative to bank financing was equity. But Belgian companies are slowly realising there are other forms of financing – that there is a third way. The mezzanine finance we provide is one of those alternatives and we are seeing a growing interest."

The fund held a first close of €75m in February and has a €100m target. It will provide subordinated loans in the range of €2.5-15m to mature SMEs in the Belgian market.

PMV and Capital@rent claim to currently be the only two non-bank lenders of mezzanine financing in Belgium. The two firms are competitors, though this joint venture means any transactions brought to the table that are worth more than €2.5m must be proposed to the new fund. For deals under €2.5m, the competition remains in play.

However, it is not just the Belgian industry making strides with its shadow banking market. A new mezzanine fund for the Dutch market was also recently set up. Last year, Delta Lloyd Asset Management took over management of the Oyens & Van Eeghen mezzanine fund, O&E Mezz Fund, and renamed it Delta Lloyd Mezzanine Fund.

The €100m vehicle targets the Dutch market equivalent of Mezzanine Partners 1's focus, contributing mezzanine financing in the range of €5-15m to Dutch SMEs as part of buyouts alongside senior debt facilities.

So far, Delta Lloyd Mezzanine Fund has provided subordinated loans for the acquisition of Dutch graphic boards manufacturer Eska Graphic Board by Andlinger & Company from H2 Equity Partners in November last year, as well as Dutch investment firm 5Square's portfolio company De IJsvogel Groep, the holding company of Pets Place and Boerenbond, last October.

However, despite the progress being made in the region's shadow banking industry, some aspects of non-bank lending are still a foreign concept.

While lending from banks has certainly slowed down in Belgium in recent years, their presence is still needed for larger debt packages while the country awaits the arrival of alternative lending facilities, such as the increasingly popular unitranche form of financing that is sweeping across the rest of Europe. "This is a very exotic term in Belgium," comments Claeys. "I haven't seen any companies here that have replaced their bank with one debt provider or something similar.

"Banks are still vital. There are only four major players, and they have a very important role in the economy. It's too early for things like unitranche – it would be too shocking."

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