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Debt finance series: Special situation and direct lending funds set to deploy

Debt finance series: Special situation and direct lending funds set to deploy

12 October, 2020
Africa, Asia & Middle East Capital Markets Direct Lending Debt Restructuring & Insolvency

Managing Director, Alan Booth continues his dive into the debt markets, highlighting the activity of special situation and direct lending funds as they react to market uncertainty.

At Ocorian we work very closely with a diverse range of fund managers, who are adept at spotting opportunities and have accelerated the level of fundraising within pre-existing special situations funds and new ones coming to the market. From this perspective the appetite, particularly among US and to a lesser extent European and UK fund managers, to take a sizeable position on distressed debt is becoming a key theme for Q4 and will be a theme throughout 2021. 

We look to service our clients at the portfolio level and facilitate our clients with structures, from fund creation and work-out scenarios, through to investment holding, staff incentivisation and on to exit. At the moment, there is a strong focus on fundraising, looking at corporate targets in default, and there is a lot of capital ready to deploy and starting to be deployed, not necessarily just on distressed assets, but on corporates that continue to be a going concern but which are currently under-priced due to market conditions.

The sectors in the spotlight right now are really any relating to supply chains around the automotive, airline and retail industries. Then there’s also the Brexit play alongside COVID-19, which makes UK target acquisitions that little bit more attractive. So, we will certainly see that deployment continue. We are seeing government and central bank support coming to an end, while there is pressure on traditional bank lenders to go easy and not trigger loan defaults. As that government support is withdrawn in Q4 and bank lenders roll back on their support, certainly in the UK we will see the need for special situations funds to be deployed.

Direct lending funds look to deploy locally

What we are seeing in the Asian market is particularly interesting and will have an effect on inward investment to Europe and the US in the short to medium term. There is now $850 billion globally in private credit, and in Asia, their direct lending generally comes into Western economies and assets. Those outflows are being pulled back, both to de-risk and to channel more investment into their home markets. That is something we are focusing on in Singapore and Hong Kong, which includes understanding the nuances of the local markets. We are building out what we can do around direct lending platforms and private placements in Asia.

In Europe, we are currently in the process of setting up a number of private placements and that activity has been unphased and continues to grow. That dovetails into the need for funding not related to the banks, who are pulling back and are being replaced by private equity players like KKR and Apollo, who are stepping up from the mid-market to look at listed corporates for investment. Those large players are deploying a lot more capital than ever before.

Note: This article is part two of a three-part series examining the rise of debt issuance activity. *

Specialists in restructuring

At Ocorian, we are actively looking at ways in which COVID-19 is having an impact on the debt capital markets, in particular debt restructuring and corporate insolvency. Our team of corporate trustee experts have years of market experience in securitisations, complex restructurings, defaults and downgrades. We would welcome further discussion with you on how COVID-19 is affecting your business while we are happy to share our commercial and practical experience.

To discuss how our restructuring support services could help you, get in touch via my profile below or click here to read more about our offering.

*Article first featured in Private Equity International on 01/10/20.