France: Private debt still thriving despite muted fundraising

With a couple of debt funds on the fundraising trail planning to hold closes on significantly higher than their predecessors, there is clearly continued appetite for private lending strategies. Ardian is nearing the end of the fundraise for Ardian Private Debt Fund IV, Unquote has learned, and it should close on around €3bn – a 50% size increase on its predecessor. Siparex held a €125m first close for Intermezzo 2 in October and a final close is expected in Q1 2020, with a hard-cap of €200m. The first Intermezzo fund closed on €100m in 2016. Meanwhile, Idinvest launched its Private Debt fund V in Q1 this year. The GP will aim for a €1bn final close in H2 2020, while its predecessor closed on €715m in May 2018. Unquote understands that the vehicle has now hauled in more than €500m.

Although the increase in the size of the funds is noticeable, there has been a slump in final closes in the first three quarters of 2019, with only one final close taking place to date: Omnes Mezzanis 3 on €100m in July. However, three quiet quarters were predictable, given that 2018 saw one of the highest aggregate values collected for direct lending and mezzanine funds on Unquote Data. Last year, six funds held final closes, collecting €3.87bn, with the largest fund closes being Capza's €950m fourth Private Debt fund, Amundi's €800m Dette Senior III, and Idinvest's Private Debt Fund IV closing on €715m.

Cécile Mayer-Levi, head of private debt at Tikehau Capital and chair of the France Invest Private Debt Committee, says: "Alternative investment teams of pension funds, insurance companies and large family offices are actively looking at the private lending strategies, which moves the yield quickly and provides good diversification." This can be illustrated by the growing popularity of unitranche packages, which were mostly used for mid-market transactions until a couple years ago, but have since featured more prominently in transactions valued anywhere in the €500m-1bn range, she says.

How to spend it
Private debt players have not been short of opportunities across most geographies in Europe, with aggregate value in H1 2019 totalling €22.6bn, following €38.1bn worth of financings inked for the full year 2018, according to the latest Deloitte Alternative Lender Tracker. In France, 41 direct lending transactions took place in H1 this year, against 65 in the UK and 20 in Germany.

The bank offers are still very competitive in France, but private debt financing is advantageous for many private equity transactions, especially in pre-emptive deals. Says Mayer-Levi: "In the current environment, agreeing to expensive debt arrangements is not as problematic as losing a bid and wasting time on several transactions. Moreover, with direct lending, private equity houses would only need to speak to one or two private debt players, rather than a syndication of banks. In terms of confidentiality, this is a huge advantage."

Another set of statistics highlights the continued growth of the French private debt space: the volume and aggregate value of private debt transactions in 2018 increased by 19.5% and 16% respectively compared with the previous year, according to private equity trade body France Invest and Deloitte's Private Debt Report, published in Q2 this year. The average debt ticket also increased from €47m to €49m and unitranche transactions represented 62% of capital loaned in 2018, a 21% increase compared with 2017.

Unitranche may have become a market leader, but mezzanine vehicles are still being raised to serve the small-cap space: Richard Dalaud, member of the Siparex executive committee, says that despite unitranche's popularity, a traditional debt package of separate mezzanine and senior debt is still one of the most convenient debt options for small-cap companies that generate a good cash flow.

With statistical and anecdotal evidence showing the growing strength of the market, staying disciplined when it comes to the terms and conditions offered will remain the primary challenge faced by private debt players – and especially newcomers. 

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• Topics
• France
• Fundraising
• Financing
• Unquote Data
• Unquote Analysis
• IDInvest Partners (AGF Private Equity)
• Ardian (formerly Axa PE)