Competition intensifies as Italian debt markets boom

"There is a very good level of debt availability from various instruments, starting with bank debt, which is readily available," says Philippe Minard, founding partner at Emisys Capital, which manages the Italy-focused hybrid debt and equity vehicle Emisys Development. "The banks are more active now than at the start of the year and they are very supportive. And there are also foreign banks, because it is now much easier to lend from outside Italy from a withholding tax point of view," he says.

And foreign providers are entering the Italian market, too. In late October, LBO Italia invested in the buyout of GF, a producer of inspection and testing machinery for the pharmaceutical industry. The deal was understood to have been supported by a €14.2m unitranche facility, provided by local player Emisys, alongside France-based Tikehau Investment Management. "It was a clear example of how Italian transactions can interest foreign lenders," says Minard.

Hire and higher
A recent hiring spree at HIG Capital, with Vania Panizza and Gabriele Magotti appointed as directors of private equity and real estate respectively, also saw the appointment of Guido Lorenzi as director of WhiteHorse, its credit arm. Elsewhere in the market, New York-based Muzinich is continuing its fundraising efforts for its Italian Private Debt Fund, which held a first close on €156m in April. Moreover, now-independent MPVenture is considering a hybrid debt and equity vehicle for its next fundraise.

Bank debt has also returned this year; in June, Gruppo Fabbri Vignola was sold to US-based Lincolnshire Management, with a debt package provided by a banking syndicate comprising Banca Popolare dell'Emilia Romagna, Cariparma Crédit Agricole and GE Capital Interbanca. The Italian debt market is alive and well.

Competition hots up
But with bank lending returning as alternative lenders bloom, competition is fierce. "The high level of liquidity in the market has two impacts on our business. Traditional lenders such as banks are competitive to lend in a traditional, leveraged buyout transaction or to finance a capex programme, as the banks are now available to do that," says Minard. "But on the other hand, the fact there is more debt in the market makes more extraordinary transactions more likely and easier to arrange. The type of hybrid investment we want to do - debt and equity - is now easier. There is more competition on the more traditional lending business, but, overall, we feel very positive on the current context because there is more liquidity and activity. We are better off in this market condition."

And those conditions are undeniably different to a year ago, with alternative and traditional lenders piling into the space. Even Italy's state-supported Fondo Italiano has entered the market, albeit in a fund-of-funds role, where it has €250m to commit to mini-bonds funds. Several such funds are being raised; the first launch occurred in May 2013, when Monte dei Paschi di Siena announced a €150m vehicle in partnership with Finanziaria Internazionale Investment and Confindustria; Antares Private Equity and Azimut's mini-bonds vehicle has a €300m target and, with its €4m minimum investment threshold, throws the game open to high-net-worth individuals; while Mediobanca's Fondo Per Le Imprese is confined to institutional investors alone.

With a number of other fund managers out in the market raising mini-bond funds on the back of the Italian government's decree that allows local SMEs to issue debt, the space has expanded greatly. During the summer of 2014, 30 Italian SMEs issued bonds worth around €1bn, according to local reports. But with several vehicles structured in anticipation of an enduring credit crunch, when the current renewed vigour in lending seemed nothing but fantasy, they may have to go back to the drawing board.

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